Here’s another piece of news to add to the January blues: the cost of living is going up. Great! Just as I’m starting to feel really stretched paying back Christmas, I’m told everything’s getting more expensive.
As well as our waistlines, prices were getting inflated during December, the experts say. Hold that panic buying though: the increase was 1.6%, compared to 1.2% in November. Which really doesn’t seem to be enough of a jump to start worrying about.
This is the problem with measuring inflation. They do it by monitoring the prices of a ‘shopping basket’ of goods such as food, fuel, electronics and some services. It’s quite interesting to see what’s on the list. It ranges from showerheads and guitars to leg waxing and tinned tomatoes. And there’s the issue: it’s so diverse that not everyone is impacted in the same way.
If there was a Minted Consumer Prices index, for example, it would look miles different. There would be no place for dog boarding kennel fees – I don’t have any pets. There’s not much call for emulsion paint in our house either and I’m not going to suffer if the price of knitting wool rockets. But increases in self-catering UK holidays, pedicures and that absurdly expensive printer ink, none of which are included in the official figures, will hit hard.
My handbag habit will also cost me. Luxury goods inflation has far outstripped rises in general products. In the last six years, Chanel handbags have increased in price by more than 70%, says the website Baghunter. Normal inflation in that time was about 21%. Great return, presuming resale is possible, if you bought in 2016 – perhaps Mr Minted might be persuaded to invest?
Weirdly enough, rising prices can be a good thing. It shows the economy is growing and gives people confidence to invest and build. Workers tend to earn more and interest rates have to go up to cap growth in spending, which helps savers – although mortgages become less affordable. Look for cheap lending at comparison sites such as uSwitch*.
In this situation, it’s crucial to check returns on cash savings are keeping ahead of inflation. Otherwise the value of your money drops over time instead of increasing because the interest paid doesn’t make up for the negative impact of inflation. There are accounts out there paying 0.01% - make sure you’re not in one of them. See our guide to saving successfully here.