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Is Inflation Good News?

13th Jan 2016
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Readers might well have had mixed feelings to learn at the end of last year of the American Federal Reserve decision to increase interest rates to 0.5%.

There are a number of different perspectives that might be considered when looking at this issue.

  1. How it might affect accountancy practices in the United Kingdom
  2. What it does to those who have stretched themselves to buy property
  3. How it affects the retired and those with cash in the bank.

The first point to note is that for many high rates of inflation are unknown or long forgotten. That is a measure of economic imperatives over the last decade or more.

Looking at our businesses, inflation is likely to be a double-edged sword. On the plus side, it may mean that we can charge clients more in future. However, there must be suspicion that canny accountants have been increasing rates throughout the recession, probably hoping that clients would just assume that this was the norm or not even notice.

From the other end of the argument comes the certainty that our suppliers will begin to charge more and just as significantly there will be much greater pressure for wage inflation as our best staff spy out opportunities elsewhere at higher salaries.

Overall though, the profession will probably benefit from at least a modicum of price increases over and above general inflation during coming years. However, if we begin to see historical German or Argentinian levels where money gets carted around in suitcases and wheelbarrows that would be another matter.

From the perspective of property owners, one fears many must be seriously concerned that London could become the eviction capital of Europe or the world. We have been seeing massively inflated house prices and first-time buyers mortgaging themselves to the limit and way beyond in order to find that dream home (or even a pokey little one bedroom flat). Inevitably, as soon as interest rates rise many will be struggling to cope unless generous employers (yes that means you) are willing to pay them considerably more than the going rate for their work.

This is a serious concern and could eventually hit many readers directly or at second-hand as their children/grandchildren need money in order to keep a roof over their heads. The terrifying alternatives do not bear thinking about. Can you really face downsizing or finding a household being foisted on you with very little notice or opportunity for either party to escape.

The people who are likely to feel greatest benefit from higher interest rates are those with money in the bank. At present, almost every bank in the country is persuading investors to give them money at close to 0% interest.

This means that in real terms the finance houses are making a mint, while we are supporting their executives' mega bonuses.

Once inflation begins to take hold, they will have little choice but to begin paying more commercial rates of interest or lose our trade. This could be particularly beneficial for those who have retired and currently find their nest eggs diminishing rather too rapidly for their self-confidence.

However, as we prudent accountants know only too well, every silver lining has a cloud. If the banks are beginning to pay sensible rates of interest, that can only be because prices are rising and many pensioners may find that increases in the cost of feeding themselves, heating their homes and taking an occasional holidays will more than soak up the additional interest that they earn on the fund that has taken a lifetime to build.We have fun times ahead.

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By jayashreee
19th Mar 2016 06:39

inflation

In this article , your topic is really said about the economic related issues it is really nice and good thanks for sharing this information

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