The latest UK inflation figures show that inflation has gone up 0.6% in the year December 2019 - December 2020. It is a sharp rise compared to the November figure of 0.3%.
What this means to us is that the cost of buying goods and services has gone up by an average of 0.6% over the last year. Items such as food, clothes, train tickets and house bills are included in the government’s calculations.
This means that:
1) If your savings are earning less than 0.6% interest over a year, your money can buy less than it did a year ago. Even though you have more money in your bank account, each £100 you have is technically worth less because the cost of buying has gone up more.
2) If you’ve had no pay rise this year or a pay rise of less than 0.6% you’ve technically had a pay cut because your money won’t be able to buy as much as it was able to do a year ago.
3) Although the cost of buying has gone up, you probably don’t notice it in the short term (from year to year), but if you had bought a loaf of bread in 1989 it would have cost you about 49p and now it’s about £1.10. You’re still buying the same loaf of bread but it just costs a lot more now. This has happened because of inflation over the years. It adds up over time!
Tip: If you have savings, try to get a better savings rate than inflation rate. If you do not, your money is worth less every year!
