Charles Stanley’s recent research found that two in five UK adults (41%) do not fully understand the impact inflation has on the value of cash savings:
- 10% believe it increases the value of cash savings.
- 9% say it doesn’t affect the value of cash savings.
- 22% admitted they don’t know what impact inflation has on their cash savings.
Rob Morgan, Chief Investment Analyst at Charles Stanley, comments: “Central banks underestimated the inflationary impact of money creation during the Covid era, wrongfooted perhaps by the patchy and intermittent economic recoveries from lockdowns. They could hardly have foreseen, nor can they do much about, the compounding effect of supply chain problems and the Russian invasion of Ukraine, which has driven up energy and food prices further.
“Yet now they are determined to vanquish inflation, and that means higher interest rates, potentially for some time to come, though they will likely lag behind the rate of inflation, meaning a negative ‘real’, or inflation-adjusted, return on cash.
“This makes for a difficult investing environment. On the one hand, investors are trying to hedge against, or even benefit from, higher inflation. On the other, a collapse in demand may lie ahead as higher prices take their toll.
“While better times will return, investors need to be prepared for choppy markets in the short term. To navigate these waves, it’s vital to ensure investors have a diversified portfolio and hold their nerve.”
Consumer literacy on inflation
“There is a clear lack of financial literacy around inflation, which is especially concerning given the rate it is currently increasing. Thousands of consumers have been used to a low inflationary environment over the past decade, but the lack of awareness and understanding over the huge impact it can have on daily expenditures and long-term personal finances is alarming.”
