“The King is dead, long live the King” - in the words of an old saying.

Inflation is most definitely not dead, never has been and never will be.  There are periods in history where inflation has both ravaged economies throughout the world, as well as times where it has been under control for long periods. The UK has been fairly lucky in that apart from a couple of period where inflation got out of control (e.g. 1987, etc although even these periods only saw high single digit inflation) we have not suffered any where near the likes of Brazil, etc where historically they have seen inflation levels in the thousands of percent a month.

What is inflation?

Inflation is basically the factor by which assets, costs, services, etc will grow in any one given period. In the UK the current annual rate of inflation is just under 3%, which while a little way above the UK authority’s target of 2%, is not really a major concern at the moment.  However, if left unchecked it can easily get out of control - hence the recent rate rises by the Bank of England.

Does inflation really effect me?

Inflation effects us all in our everyday lives, at work and at home and has the potential to bring great joy or despair.  It will effect the price you pay for a loaf of bread, the cost of your home and many many more areas of society which you may take for granted.

Perhaps the largest effect inflation may have on the everyday consumer is at work, and the amount by which your salaries rise year on year - depending upon inflation.  In simple terms, if inflation has risen by 2% over a 12 month period, then your salary will need to rise by the same amount to give you the same spending power.  It is all to do with relative terms, and the effect they have on your spending power.

If you salary was increased by less than the rate of inflation, then in real terms the value of your income would be eroded and reduced - giving you less buying power.  On the other hand, if you were able to agree a salary rise above the rate of inflation (most unlikely!) then you spending power would increase in relative terms.

Is inflation all bad?

While we often talk about inflation in derogatory terms, it is an essential part of any economy.  If there was no inflation then manufacturers would not be able to justify rises in the cost of their products or services, resulting in no salary rises, etc, etc.  A little bit of inflation is good - too much can be very very bad!

Conclusion

Inflation has the ability to surprise everyone, and especially those who think it is dead and buried.  It is most definitely alive and kicking, and without due care and respect it can quickly ravage even the strongest economies of the world.