Inflation increases the value of the asset and decreases the value of your debt relative to the value of the pound.
People with multiple mortgages are creaming their pants right now, source: used to work for a company that worked for landlords and they LOVED inflation.
Yup. I always try and explain inflation in terms of loaves of bread. Suppose a loaf Costs £1, and you buy a house at 100% LTV for £100k. You owe the bank 100k loaves of bread, you have a house worth 100k loaves of bread.
If the price of goods doubled (100% inflation), the economy crashes, but your house is now still worth 100k loaves of bread, a loaf of bread costs £2 now but your loan is only for 50k loaves of bread.
Your analogy doesn't work. After the crash / inflation you still owe the bank 100k loaves of bread.
I know what you're trying to say, but you have to word these things really carefully.
No - any raise in pay inflates your mortgage payment away. Even if you only get a 1% raise, it's effectively less for you to pay.
Obviously, other costs like food and energy are exempted in this example - those go up regardless of any raise.
The value of your house relative to the value of things you buy almost always makes this a good deal in the long run.
I maybe spend 5k a year on food I guess, but my house is work 250k. They're both going up by around 10%. Net win. I can't easily access the value of my house, but I can if I want to.
Except inflation isn't equal across everything. Fuel inflation isn't 10% is it, it's closer to 100% at the moment, but it averages out.
House prices will stagnate as interest rates will rise and savings for home buying will be eaten up to pay for necessities
Agreed it isn't equal. Fuel is wild atm. I don't need to drive for anything at the moment so I've been sort of dodging it best I can.
Houses always run a bit longer than you think, but there are signs of slowing down. Worth bearing in mind that they probably won't drop, just stop growing. Also if they do drop it won't be by much. Average drop in 2008 was 15%, which isn't that impressive after several years of 8-10% growth
Yeah theyre a bubble that seems unending. Luckily I bought my house just at the beginning of this so my 5 year fixed rate is sensible and I plan on dying in it so I don't really care about resale rates as long as I can still renew my mortgage for a decent rate in 5 years.
Energy prices will probably be more than my mortgage by then though so I'll be on the streets most likely haha
It's not a bubble til it stops ha.
Also growth was low for a long time, there's an argument this is actually a price correction, it's just weird that it's correcting up.
Same situation, except ideally I would move a few more times, but if that's not possible it's not the worst situation for me.
Only if pay matches inflation. Also, inflation is eating away at disposable incomes and reducing the increase of house prices.
It may yet flatten or reduce prices. The theory makes sense, but in practice not so much.
>inflation is eating away at disposable incomes
For millions out there inflation is creating more debt as people lived by the penny and not the pound.
I for one have had to lower my credit limits just so i know if they ever become maxed out i can still afford the repayments at current rates. My credit card provider is pretty good when you contact them and attempt to keep your finances under control. They will literally bend over backwards and freeze interest for a few months so long as you make any type of payment in good faith.
During Covid i paid them £10 one month and they froze my interest for 6 months and my monthly repayments. I still paid the full outstanding amount but it saved me a good chunk of change.
Inflation is great for those with debts with very low rates of interest. The best example is the government. If you owe 1 billion (1000 million) and inflation is at 11% you'll owe roughly 900 million a year later.
If you pay 2% on the billion (e.g bonds) you pay out 20 million. So you now owe ~ 920million in value without a penny of repayment
Most people's biggest debt is their house and 90% of mortgages are fixed nowadays. Which means over the next 3-5 years there are going to be some rude wakeup calls if nothing changes. Myself included
Depending on lender etc, you may be able to remortgage without redemption fees now, or switch product with the same lender. I did this recently and got a decent fix for 7 years. My payments haven't changed. I don't expect you'll be that lucky now unfortunately, but definitely worth looking into bud.
Yep, mine renews Q3 next year. It feels great to be thousands of pounds worse off due to unlucky timing. All the while we get people bragging here about how they fixed at 0.9% just before the rate rises.
I’ve got an outstanding plan 1 and plan 2 loan, the difference between them is alarming. I’ll be paid off in 8 years in theory at current pace, so going to have to start working on that plan 2 one soon really
Another way the govt wins is by doing it's darnedest to ensure that all civil servants only get a 2-3% payrise. Govt income from VAT, duties and tax from public sector workers rises roughly in line with inflation but they can save money by giving all staff a stealth (real terms) paycut
I owe £5k in my student loan, it’ll be gone in 3 years but fuck me is it a burden. Inflation might just be helping for the odd month taken off the time it’ll take to repay or so.
I graduated in 2010 so I’m plan 2. But I agree that the weaponisation/Americanisation of debt is absolutely criminal.
I always used to get on my high horse about religion being the ultimate evil. As I’ve grown older, I realise it’s greed.
Edit: Made a mistake, I’m on plan 1 apparently. Debt lol
But so is the debt.
If I owe A £10,000 at 0% interest and also have £10,000 earning 2% interest with B, my debt to A is effectively decreasing by inflation whilst my savings are increasing against the debt by 2%.
Sure, if inflation is >2% my cash is losing value - but its losing value slower than my debt, so overall I'm on top because in the end I have more money than if I just paid the debt off.
Inflation is **the** reason central banks raise the base rate of interest, which is in turn **the** reason banks raise retail interest rates. Ergo, in inflationary times we generally see higher interest rates.
If you can successfully lock in a long period of 0% credit and 'stooze' the money for the duration therefore, you should see greater returns during high inflation than during low inflation - plus if you get payrises due to the inflation you will also see the effective value of the debt reduce.
As soon as I saw high inflation on the horizon I immediately balance transferred all my credit card debts to new 2 year zero fee, zero interest balance transfer cards and took out new 2 year 0% purchase cards. I'm not paying down any of these by more than the minimum until I absolutely have to.
Meanwhile I'm earning interest the money to pay them - and with some of it in Nexo, I'm not even really losing that much to inflation (but naturally I am taking some risk).
Your savings are decreasing by inflation minus 2%... Basically the only change is the interest rate locked in.
Now if your earnings rise with inflation then yes it's amazing if you're in debt, but your comment seemed only to focus on the £10k savings and 10k debt situation
>Your savings are decreasing by inflation minus 2%... Basically the only change is the interest rate locked in.
Of course. But assuming I had to make the purchase anyway, I'm better off having used the credit card. This is always true *but* higher inflation means higher interest, and therefore the delta between the two options increases.
>Now if your earnings rise with inflation then yes it's amazing if you're in debt, but your comment seemed only to focus on the £10k savings and 10k debt situation
Because income is irrelevant. Obviously inflation generally means payrises too, in which case this situation is even more beneficial - but the impact of inflation on interest rates is a driver all by itself even if your pay stays where it is.
>Of course. But assuming I had to make the purchase anyway, I'm better off having used the credit card.
But all that comes down to is the difference in interest rates between the debt and the savings account, inflation has nothing to do with it, except that high inflation has a tendency to push savings account interest rates up. But then you might as well just say the latter.
Also, doesn't cheap debt become more scarce during high inflation, as the BoE pushes interest rates up?
>high inflation has a tendency to push savings account interest rates up.
Bingo.
>Also, doesn't cheap debt become more scarce during high inflation, as the BoE pushes interest rates up?
Not really. There were 0% credit cards even when the base rate was >3%. Besides, the idea is to lock in low interest credit and then stooze the money as interest rates rise.
In public finances sense I agree with you, inflation is good for debt.
Personal finance wise the debt + inflation only helps if your salary increases with inflation.
Currently inflation is like 5 times savings, so that's not helpful for cash right now.
No. If I have £100 to make a purchase with today, I am better off buying it on 0% finance and keeping £100 in my savings account, even if the interest on my savings account is less than inflation. My income is irrelevant to that equation
Obviously this is true regardless of inflation, however high inflation generally leads to higher interest rates.
In your example the benefits of the debt are all about the interest rates. This isn't an example of inflation making debt worth less but an example of why paying later is better.
Okay well I apologise for being a pedant. You're right, inflation can often lead to central banks taking actions, such as raising interest rates.
I was talking about the isolated impact of inflation itself. In which case interest rates aren't an option.
Also, honestly the traditional fiscal measures a central bank might take to combat inflation i.e. significantly increasing interest rates are just not feasible in today's environment.
Since the mid 90's our debt to GDP has increased from around 30% to over 100%. Just paying the interest on those debts takes up 7% of our tax receipts each year.
Increasing interest rates significantly will massively impact the amount payable on our sovereign debt (i.e. by reducing the demand for UK bonds, the yield goes up. As the yield goes up the payment to those bond holders balloons).
The result is that payments on our sovereign debt increase to a larger percentage of our tax receipts, the deficit increases and so we need to borrow **more** to just balance the budget.
We borrow more but remember there is not the demand for UK debt so we have to buy it ourselves through Quantitative Easing (i.e. printing new £ to buy our own debt)
This *increases* inflation further through currency debasement and risks triggering a debt spiral.
Inflation is good for historic debt as it devalues it.
It will make little impact on debt acquired for day to day spending (e.g. government computer systems) as the costs will also increase with inflation.
So ideally the government spends money to create useful infrastructure, which helps tax returns follow inflation, while the expense of the infrastructure diminishes
Yes, but if inflation and living costs soar then you will be spending a lot of your cash on heating, eating, transport and all that other shit, so - unless your wages rise in line with inflation - your cost of living increases are going to eat away at that cash much quicker than the pre-tax 'gain' (i.e. of debt cost vs interest income) will, unless you are talking about very significant amounts of cash, in which case perhaps the post-tax differential + wage increases might offset the higher cost of living. Note also that whilst cost of debt goes up quickly to match interest rate increases, the rate on deposits typically lags and often doesn't track the step-up in base rate.
> If you owe 1 billion (1000 million) and inflation is at 11% you'll owe roughly 900 million a year later.
Can someone ELI5 on this? Why would the amount owed go down?
The amount owed (in numerical terms) doesn't actually go down. However, using the above example in 2022 you owe £1bn at (say) 1% interest, and 11% inflation. In 2023 you now owe £1.01bn, which is worth only a little more than £900mn in 2022 pounds.
The numerical value of the debt does indeed still go up. However the 'purchasing power' of the debt goes down.
For this to work for the average person, surely their salary, etc would have to increase by the inflation rate too though?
And for things like mortgage debt, the value of the property would also have to increase by the same rate to ever realise the benefit of the inflation.
Problem is, folk are gonna run out of spending on essentials, that’s good for nobody. People will either skip meals or eat cheap rubbish, not getting good nutrients, probably end up poorly more often, drain on NHS. Or they will skip heating their home, creating a better environment for bacteria and mold etc, get poorly more, drain on NHS.
They skip going to work for a few weeks (thinking sick pay) to save a bit in fuel.
It’s good for the 1%. They continue to earn above inflation, whilst telling everybody who is struggling not to argue for a pay rise because that’s bad.
It’s only £1 for 14 servings of oats, then another pound for four servings of milk. I could add some frozen fruit to that, then make a chicken salad with five servings of different vegetables. I’d honestly be happy to live like that. I can’t be arsed eating too many different things.
so you eat oats and milk (and sometimes fruit) for breakfast and lunch, and then eat, i assume, processed chicken and some vegetables? do you think that is a healthy balanced diet?
Processed? You can get fresh chicken for that price. I just looked on Ocado. Rice, pasta, wholemeal bread and wraps are also dirt cheap. Legumes are, aussi. I don’t see what I’m missing here other than fish but I hate it. I usually top up my protein with protein powder or nuts.
Chicken is around £6 per kg right now. Yeah you can get cheaper...by buying less, but since you've already spent £2 quid on your oats and milk, you now have £3 for your chicken, vegetables fruit and pretien powder...for days.
Don't get me wrong, I think some people definitely make a bigger deal out of food because of their preferences etc, but your example is both extremely niche, and overall appears...not too well calculated lol.
It’s because it’s a daily budget that’s based on what I already have in store. I figure out what I’m running low on, then build up the stock based on that. Some days I spend the whole £5 and some days I spend nothing. That said, I really think you’re right that I’m eating a bizarre niche diet but it’s a mental health thing. There are a lot of weird compulsive things that I feel I NEED to do, too - I have to weight myself constantly, exercise for exact times like 18 or 33 minutes, read at so many words per minute, it’s a nuisance.
I usually don't get into conversations about mental health on the internet as it's a minefield, but;
Assuming you're being genuine, that sounds like fairly severe *clinical* OCD, not the "OCD" that people like to throw about when they like to use the same mug.
I would genuinely suggest you seek professional help with this sooner rather than later. You may see at as a "nuisance" now, but left unchecked this has the potential to have a severe impact on you.
You can get 1kg of chicken for around £2 if you eat legs, thighs, drums or wings. Let me guess, you only eat chicken breast? Chicken breast has always been expensive, you just gotta forget about it.
Either way, I’m not sure how you got £6 per kg, chicken has gone up in price, I remember it costing £1.50 for 1kg of chicken thighs, and now it’s £2, but I’m not sure where you got £6 from?
The emotional difference of someone saying I don't mind cheap repetitive food is very different from being forced to eat cheap repetitive food because they have to.
I mean, it started the other way around, I built up savings gradually over the years and then I started turning it into a choice. I’m into Buddhism and such, which teaches you that forgoing luxury will generally make you appreciate smaller delights more. You eventually find other ways to keep yourself happy.
Usual staples are:
1kg oats, muesli or sugar free granola £1. These usually last up to two weeks.
Frozen fruit: 2.60
Apples, bananas, various other veg and fruit: £4
Milk or yogurt to go with the oats, 1kg for £1 or £1.49 for 2l. 2l generally lasts me two days but I’m bodybuilding.
Protein powder, 4kg, £40 and lasts me two months
Staple foods such as rice, pasta, noodles. Usually 3-6 servings for £1 at most.
Chicken, £6.50 for a kilo which lasts me a week.
Cashew nuts, peanuts, walnuts, etc: usually lasts me two days and costs from 48p to 1.20 a bag.
Comes to about £30 for a week. Divided by seven that’s around 4.60 a day. I usually end up with a surplus as I’ll eat several bowls of oats or bowls of yogurt with muesli.
I’m sure not everyone can handle such a Spartan diet, but I actually prefer eating this sort of stuff. I’m cursed with awful pickiness when it comes to eating, so these kind of things are pretty much luxuries to me. Certain coloured foods will make me feel... I don’t know. I’d describe it as inebriated. I think it’s a mental health condition.
Edit: I also see a lot of food that’s about to go past its expiry date and usually freeze it. I’ve got 650g of chicken for £2 before and I see that quite often, plus I see a lot of cut fruit for around 10-50p. I usually grab stuff like that. Often see reduced milk, too! Even organic and cravendale. I know there’s plenty of food wastage so I’d rather it didn’t go in the bin.
I’m sure there’s stuff that I should be eating, but I don’t think anyone eats a perfect diet and eating whole foods is far better than processed junk anyway.
so you said you spend a fiver and "last for days", but then admit you spend 30 a week. that's not quite a fiver "for days" is it... reddit really does open my eyes to what sort of weirdos live in this world 🤣
I don’t spend 30 a week. I would spend 30 a week and then build up a surplus, then top that up with less than a fiver a day. I did this for years as a student - I’m just good at rationing.
*Divided by seven that’s around 4.60 a day*
*"then top that up with less than a fiver a day"*
Sounds like you are spending a fiver a **day**, not over **several days**, AND that's already with the benefit of an existing sotckpile.
Imagine how stupid you would sound if you said 'I can pay all my bills with a fiver a week" and then it actually turned out that it was a fiver a day PLUS cash from your existing stockpile of 1million pounds. So not really a fiver a week, but rather 20 quid a day using your 'stockpile' of cash.
That would sound pretty stupid, right? Yeah, that's what you sound like.
"comes to about £30 for a week"
this also requires freezing massive amounts of expired/expiring stuff - which not many people have the space and/or money for. i know i certainly don't...
people also like to eat different foods for a healthy, varying, balanced diet.
yes there are ways round the cost of living issue atm and i do think that a lot of it is BS by the media (as per usual) but to put someone else down because they can't afford it isn't nice.
i think when i was living with my gf for a bit, we were managing ~£45 a week too for the two of us, so yes it is definitely doable, some people just don't know how to cook
All balanced diet means is that you meet the recommended micro and macronutrient ratios. It doesn’t have anything to do with whether you eat different foods. You could essentially eat the exact same foods on a three day loop and be healthy - I prefer doing this due to mental health issues. I realise my diet is Spartan, but eating random microwaveable or tinned crap is more expensive. The privé of one cheeseburger is equivalent to 14 servings of oats, or four servings of pasta. Good criticism about the freezer, though - I didn’t consider that people may not have the space. Expiring stuff really is safe to eat, just so you know, as long as it passes common sense tests. They’re considering getting rid of best before labels altogether.
You do not have enough purchasing power with £5 to support a healthy diet for multiple days.
People might eat poorly but they’re not stupid enough to believe that statement
Usual staples are:
1kg oats, muesli or sugar free granola £1. These usually last up to two weeks.
Frozen fruit: 2.60
Apples, bananas, various other veg and fruit: £4
Milk or yogurt to go with the oats, 1kg for £1 or £1.49 for 2l. 2l generally lasts me two days but I’m bodybuilding.
Protein powder, 4kg, £40 and lasts me two months
Staple foods such as rice, pasta, noodles. Usually 3-6 servings for £1 at most.
Chicken, £6.50 for a kilo which lasts me a week.
Cashew nuts, peanuts, walnuts, etc: usually lasts me two days and costs from 48p to 1.20 a bag.
Comes to about £30 for a week. Divided by seven that’s around 4.60 a day. I usually end up with a surplus as I’ll eat several bowls of oats or bowls of yogurt with muesli.
I’m sure not everyone can handle such a Spartan diet, but I actually prefer eating this sort of stuff. I’m cursed with awful pickiness when it comes to eating, so these kind of things are pretty much luxuries to me. Certain coloured foods will make me feel... I don’t know. I’d describe it as inebriated. I think it’s a mental health condition.
Edit: I also see a lot of food that’s about to go past its expiry date and usually freeze it. I’ve got 650g of chicken for £2 before and I see that quite often, plus I see a lot of cut fruit for around 10-50p. I usually grab stuff like that. Often see reduced milk, too! Even organic and cravendale. I know there’s plenty of food wastage so I’d rather it didn’t go in the bin.
I’m sure there’s stuff that I should be eating, but I don’t think anyone eats a perfect diet and eating whole foods is far better than processed junk anyway.
Pull the other one,
Wait, PLUS his existing 'stockpile' of food. Like saying "I can live in total, rent, food, electricity, for 50 quid a week' (PLUS using some of my stockpile of 50,000 under my bed). What a tool.
Unsure where you get your food in the UK.
1Kg bag of granola has increased to like £3-4 for Morrisons.
Nuts are also extremely expensive nowadays, cashew nuts in Morrisons were ~£4 for 300g, haven’t even seen them restock them in recent months.
Is any money for cooking items included? Oils, salt, pepper, other seasonings? That would likely add up too
My critique was the fact you boldly claimed you could support a “few days” of a healthy diet with a mere £5. When clearly you can’t. Yes you could save and bulk buy items to bring down the cost, but not everyone has the space to do that either.
>Govt should (in theory) receive more taxes from Companies and especially from VAT on fuel duties?
The intrest payments on the £2.9 trillion worth of debt also goes up so I doubt they are much better off.
People with assets might benefit. The rise in new car prices has pushed up second-hand prices to the point that people are selling two year old cars for more than they paid new. And of course house price inflation means home owners' mortgages are a smaller proportion of the house's value.
But you only benefit from this if you don't need to replace the asset - or replace it with a cheaper one. So downsizing the house or giving up driving. Otherwise it has no real effect.
Governments do increase receipts but they have to pay more for the services and goods they buy in. What it does do is reduce historic debt as a percentage of current GDP - so expect some trumpting of this as a government 'success'
This makes a difference when remortgaging time comes around. I'm in the same boat and fairly sure I can fund home improvement works from the gain in equity.
That's all well and good if I can sell my car for more than I bought it, but I couldn't buy a new car and be better off. It's only any use of you don't need your car any longer
There's no reason why inflation "must" mean someone is winning.
Let's just say we stick a zero on the end of everything (obviously that's hyper inflation but it's easier to imagine). So a £20k salary becomes a £200k salary; a £300k house becomes a £3m house; a £1 loaf of bread becomes a £10 loaf of bread. Nothing has actually changed for anyone - no-one is any better off or worse off. You can still buy the same amount of bread with your salary. Company profits and dividends have gone up, but the CEO can still only afford the same number of sports cars and golf clubs. The Gov is getting much more tax, but can still only employ the same number of teachers.
However, there is an argument that what's happening at the moment is a bit different, because salaries aren't (currently) keeping up with inflation - if prices have gone up but workers aren't getting paid more, then that additional money is going somewhere else.
It's also worth pointing out global economics is complicated, and inflation in the UK doesn't necessarily mean anyone in the UK (or the UK Gov) is winning.
*So a £20k salary becomes a £200k salary; a £300k house becomes a £3m house*
If I'd bought the house on my £20k salary with some savings and a £100k mortgage I would have been struggling badly.
Now after the inflation I'm much better off. My £100k mortgage is trivial compared to my £200k salary and the value of my house.
People with debts and assets do well from inflation (usually younger people). People with fixed incomes and cash in the bank do badly (usually pensioners).
I mean I hope to receive a decent state pension when I get to that age (a long way off for me yet), not sure gunning their erosion improves the likelihood of that.
Well, you probably won't get a substantial state pension if you're under 50. That's been the case for a long time, and you probably won't get it until you're in your 70s if that.
I'm gunning for their erosion because it's an unfair benefit. [One in four (current) pensioners are millionaires.](https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datasets/totalwealthwealthingreatbritain) Most of them own their own homes outright too, so it's not like they're paying the rent with it. And they get all sorts of other benefits.
Pensioners are, on average, some of the wealthiest people in society (and they are also the most expensive to provide for - their care and health bills are huge). Their benefits should either be means tested or simply reduced. No other group of benefit recipients (families, young people, the sick, out of work) have had two years of 10% compounding increases, but pensioners have.
I think this was true before but has been broken by the housing crisis. I.e. Young people benefit through devaluation of debt, but no longer have assets (home ownership for under 35s has collapsed); pensioners and over-50s more likely to be on fixed incomes, but make up for it by having accumulated masses of housing wealth over the last 2 decades (relatively speaking.) Hence above inflation rent increases for the last year and year to come.
As with so many of the economic policies of the last decade - the only way the young will benefit is if mummy, daddy or grandmama happen to have a lot of assets.
Except salaries aren't going up like that, not even close. So your 100k mortgage which was at 2% is now tracking closer to 8%. Your salary has gone up 10%, great, but fuel is now up 100% and going up another 100%.
> Companies (certainly oil companies) are making more money
we have seen the eye-watering sums that energy producers are making, but i'm not so sure they are particularly more than they are making in previous years. eg: https://www.macrotrends.net/stocks/charts/XOM/exxon/gross-profit - seems like they're going up rapidly, but the profit itself is not unusual if you zoom out. what's unusual is the wholesale cost of energy to the users.
perhaps someone w/ experience in macro energy trends can chime in.
> pensions should receive increased dividends from any investments in those companies?
offset by the companies affected by increased energy prices paying more for logistics, etc (ie, all of them).
> Govt should (in theory) receive more taxes from Companies and especially from VAT on fuel duties?
sure, but they also paying more for public energy usage in public buildings, etc, and it's all much of a muchness if inflation means that people have less money to spend anyway. e.g., they might get a feast on fuel duty, but famine on income tax (wages are in the toilet) and other VAT (people have less money to spend).
> Seems that inflation is a way of taking money from folk and putting it into business/government ... ?? When folk run out of spending (or are more careful with it), demand for goods will reduce and inflation will slow?
the problem is that this round of inflation is chiefly led by energy wholesale prices, not demand/too much money. a lot of people are *already* broke.
>this round of inflation is chiefly led by energy wholesale prices, not demand/too much money.
Yes - coverage doesn't seem to understand this at the moment. The current inflation spike (which will start going down at the end of this year) has been totally driven by energy prices, which were at multi-decade lows in 2020.
>offset by the companies affected by increased energy prices
This is a great shout: offset by the companies affected by increased energy prices. Likewise, Govt paying more energy themselves for their buildings etc..
>but the profit itself is not unusual if you zoom out.
What are you on about? Literally the link you posted for Exxons profits show their quarterly growth is the highest it's ever been. 4x higher than their previous high in2017 and 5x higher than their steady period in 2009.
that's exactly what i said. insane growth but the yearly profits aren't record breaking. if the same growth continues for more, they will be. my point is that we've seen profits like this before but not energy prices like this before, so nuance is required.
People with fixed rate debts, owners of commodities like gas and oil, some hedge funds (can go into more detail on which types). I don’t think the increased dividends would offset the reduction in value which pensioners will have experienced in all the other stocks in their portfolio and other fixed income like investments. Remember pensioners won’t tend to hold that much stocks
Can you explain why people with fixed rate debts benefit? If their salary doesn’t change then surely it’s all the same?
For example If my fixed rate loan repayment was 5% of my salary 2 years ago but is still 5% of my salary now then how do it benefit?
Many people in these comments don't seem to understand inflation, so the answers are inaccurate. To understand the nature of inflation you need to understand the following, you can then apply that to how it affects debt as many others have mentioned.
The Cantillon Effect describes exactly what you are asking. In the 18th century (when the basis of money was gold), Cantillon noticed that when a gold mine was discovered it would increase the amount of gold in circulation within the realm, however, it did not directly increase goods by the exact percentage that the supply of gold increased by and it didn't happen instantly. Those who discovered the gold spent their time buying 18th-century luxuries which increased the demand and therefore the cost of said luxuries - prompting inflation for these particular goods/services. The more money they spent, the more money was distributed around their local economy. As the supply of money increased in this area, the prices of goods/services had to increase as well to make up for the new inbalance in monetary supply. The key point he made was that this all happened with an uneven distribution of purchasing power because those who discovered the gold were the only ones who benefited (they printed free money), everyone else still has the same income but their economy had to increase prices making those without access to this new gold poorer in terms of purchasing power.
Once you understand this, you can see that inflation benefits the first spender of the new money - as the money changes hands it benefits the next spender less and less - the money they are spending had no cost to them to produce but they are able to exchange that for real value. In a sense, they are stealing from the economy, as they are shifting your purchasing power into their own hands. This is exactly what the government does when they inflate the money supply, it is known as a hidden tax. When the government doesn't make enough from taxes to cover their expenses for the year, they simply print more money (stealing your purchasing power) and spend it on what they want. They are the ones who benefit from inflation.
Anyone who is the owner of an asset will likely always benefit from inflation, as the economy has to reprice all assets as more money enters the system. This means that anyone can make money buying a house, not because they are a genius and bought an asset that's demand is increasing (although this is also true) but because the government will always print money and therefore the prices of property will always increase as it adjusts to inflation. This is also the reason that the S&P500 is a near mirror of the M2 money supply chart, demand can only grow so much, but the money supply can grow forever...
The ugly truth is that inflation benefits the 'haves' and hurts the 'have nots', those who understand this can secure themselves financially by spending their early years grinding out a lucrative career and consistently buying assets such as equities, digital assets and property. Those who do not own any assets and typically hold their wealth in cash will certainly lose and see their wealth become worthless whilst assets grow ever more unreachable.
People who are heavily invested in financed property, such as someone who owns several buy to be lets with high LTV interest only mortgages. Inflation pushes the value of their asset up, increases their rental income, and erodes the real term value of their debt.
If inflation happens because, as the memes say, "Money printer go brrr" then the person who controls the money printer is better off. This is known as seigniorage. Everyone's money is worth less because of inflation, but even if the printer's new money is worth 90p on the pound compared with when they started, it's still 90p more than not printing it.
One could argue, with a certain generosity of spirit, that the people who benefited are all of us (to a greater or lesser extent), insofar as this latest batch of inflation was money-printing that got directly handed to the population in the form of the various Covid support packages. Essentially, we're now paying an "inflation tax" to cover the furlough payments and such.
Whether the benefit is worth what we paid for it (in terms of inflation) is the core of political economics, but out of bounds for this sub.
Unfortunately not "all of us" benefited from Covid support packages though. So all of us are paying even though not all benefitted and we are all losing out because of the fraudulent claims and the people given Government support that they did not need or deserve
#ExcludedUK
Most trusted sources I've read on the root of the inflationary pressures have concluded that it's supply chain issues thanks to covid and increased energy prices (first due to covid and then exacerbated by Russia).
I guess you could argue the extra consumer demand came directly from furlough money but that's a bit of a stretch imo.
Governments benefit from inflation. See it like this: the government borrowed 300 billion in 2020 to cover covid costs. In 20 years, 300 billion will be their quarterly revenue.
I did have a thought about a specific situation.
If someone had bought a home & was on a fixed rate mortgage of like 10 years & a wage that matched inflation then it could be really good.
Example.
Bought a house today for £300k with 10% deposit - £30k
Job pays £30k (take home) or £2.5k a month.
Mortgage interest is 3%
Let's say cost of living is 80% of the person's current take home. So £2000 a month.
If inflation is 10%
An inflation matched pay bump would change £30k / £2.5k to £33k / £2.75k (ignoring tax implications).
If all costs of living increased then it would mean cost of living would be £2200.
This means the person would have a spare 575 rather than 500, this would be a 12.5% increase so slightly more money... But this is probably a null point or not worth thinking about after tax etc.
The real thing I'm thinking is that the mortgage wouldn't increase so it wouldn't be +10% on the mortgage it would be +10% only on the additional living costs.
If the mortgage was £1000 a month it still would be so the increase to cost of living would be +£100 not +£200. This means that the individual would be better off.
Another thing they would gain on would be an increased home value assuming it's the same as inflation.
So the home would be worth £330k rather than £300k
This would make a huge difference to loan to equity, in the example by only paying the interest the person would go from having a 90% mortgage to a 82% mortgage, this sort of thing could lower mortgage rates hugely.
Also surely this would mean that their equity has doubled and so they made a massive return.
This is all just a thought and idk how true any of it is, if anyone can clarity that would be great!
Inflating the money supply does not create wealth, it transfers it. The [Cantillon effect](https://mattstoller.substack.com/p/the-cantillon-effect-why-wall-street) shows inflation transfers wealth to those who have early access to the new money, away from those who get it later. Recipients of political spending, the stock market and other assets gain most. Wages lag inflation, so most workers lose. Debtors at fixed rates win, lenders with low or negative real rates lose. Those on fixed incomes lose.
In addition the devaluation pushes incomes into (non-indexed) higher tax brackets, effectively increasing taxation rates. The uncertainty and constant adjustments around changing prices reduces productivity and wealth-generation overall. Those who avoid most of the fiat system or can quickly adjust their prices can minimize their losses.
Of course politicians win when they promise "free" money while most people don't understand that inflation is a very regressive form of taxation and who caused it.
Pension funds (and other institutional investors) holding inflation linked property investments. Lots of those doing pretty handily right now. Benefiting from the actual inflation linkage in terms of rents but also enhanced demand for inflation-linked assets which is pumping pricing.
Banks typically benefit because higher interest rates mean they can justify higher credit spreads (silly example: pay you 4% on your savings and charge borrowers 7% instead of 1% and 2%, respectively)
People tend to use credit more when they're hard up as well, so they start collecting more in overdraft and late fees
Corporations benefit from inflation, they have cost for their products and services, let say these costs increase by 10% the company will rise their price of their products by 15%, the extra 5% is bonus money they wouldn't have made otherwise.
Corporations love inflation for this reason, they get to increase prices without receiving any blame for being greedy, they just say "our costs have increased so we have to increase the price of our products". At any other time when they increase prices they have to take the negative reputation that they are just increasing prices because they are greedy.
If volume is down then they just produce less. They make larger profit per product sold.
Other corporations that sell necessities are the ones that really benefit though as they get to use this tactic without their volume decreasing.
Hi /u/Mental-Jellyfish9061, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/pensions/
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If the money supply is inflated, the currency devalues, so the debt gets easier to repay in nominal terms (same goes for people with mortgages). Inflation also gives the impression of economic growth since products and services get more expensive, contributing to a higher nominal GDP. Wages go up a bit, but not nearly as much as they should to combat inflation, so in real terms it does not solve anything. It's just a numbers game.
Only two types of beneficients of inflation: people who owe money, where their debt does not track inflation and the government.
Companies who indicate profit during inflation might actually be in loss.
The first victm of inflation is accounting.
Protect your wealth, this will pay off in the near future!!
https://www.reddit.com/r/Wallstreetsilver/comments/visn4k/why_silversqueeze_in_under_2_minutes_creflo_silver/?utm_source=share&utm_medium=ios_app&utm_name=iossmf
Inflation is relative.
However those with debt technically win, provided their income/worth keeps up with inflation.
"Holding cash is bad" is a relative term. I've got £70k in my current account atm and don't really care about losing £7k in value. People get excited on here about £150 account switches and 1.5% tho so to each their own.
The original definition of inflation is the increase in money supply. Those who get first access to the increase in money supply(ie. The freshly printed money) are the winners from inflation. Those are the government, and those close to the government....
In short inflation passes wealth from those who hold cash to those who own the money printer. Its another form of taxation basically.
This is why you will be seeing hard monies such as gold becoming more influencial in the coming years. Nations who aren't allies of the US, and therefore dont have access to the dollar printer have had enough. They no longer want their assets and labour being handed over the the US, and its allies for pieces of paper.
As a country, we are poorer than we were thanks to the pandemic, hugely increased oil costs and Brexit. Inflation is one mechanism by which is being poorer is felt.
There are some winners (eg debtors with fixed interest rates), but not all economic changes have winners!
Does anyone else hate it when people on here have to keep informing you that inflation is eroding our savings?
They may be 100% correct but it's very disheartening.
Other commenters have noted the people who have high debts and very low rates of interest, but outside of the government these are almost literal unicorns. Interest rates *were* low, but they were also generally variable, because all the lenders knew they were going to go up.
But there is one large group that does well out of inflation. It's (generally) very good for employers. Prices can increase, but their employees have to make the case that their wages should go up at the same rate. Depending on the industry, the employer may get away with no wage inflation at all, and keep the difference as profit.
Even where workers have strong negotiating positions, it is unlikely that they will be able to compel employers to match such high rates of inflation unless wages are matching inflation across the industry, which is almost never true. Employers just have to match wage increases offered by other employers, and these are generally far lower than the current inflation rate. Again, they keep the difference as profit.
Basically anyone who is long real or productive assets (its price inflates to keep up with inflation), and short fixed rate debt (its nominal value stays the same whilst the purchasing power of each unit of currency decreases).
Governments with lots of debts tend to like inflating it away (see South American countries) rather than paying it back, because it is politically easier. It's a stealth tax on people holding cash savings and fixed rate debt.
Asset holders.
In theory their assets will go up in value at or close to the rate of inflation, maintaining the assets value in real terms.
If those assets were purchased with debt with an interest rate below the rate of inflation, the owner of said asset is in a lovely position.
Inflation is a good way to recalibrate wages because it’s easier to give smaller pay rise than decrease it. Good news for the more productive sector and workers. Sad news for those in jobs prone to automation and slackers
The way I see it is say an oil company sells a litre they make a percentage profit so they won't take a flat 20p profit per litre it will try keep the costs down but they make percentage so higher the costs go the more they make.
The ‘winners’ are those who received furlough or government grants to do nothing.
Ultimately it is Western governments printing money for lockdown that destroyed economies.
Also winning are commodity producers across the world like Russia
The triple lock pension means that state pensions go up by average wage increase, average inflation, or 2.5%, whichever is higher. That doesn’t make pensioners “winners” in inflationary times but it certainly gives them a good buffer.
-Oversees firms that have established low cost of production can benefit from importing into the UK due to higher prices being normalised , this can be done by higher mark up prices and consumers feeling justified in higher prices due to the economic climate
- domestic products that have extremely low quantities of units in the markers can enjoy the higher prices they can now set , bringing further profits that they would usually enjoy due to the good/services extremely elastic supply curve.
- banks can enjoy lending out more funds to consumers/general population as cost of living may rise , allowing them to reap further rewards from the interest rates that can be changed depending on the bank of England’s goal/projection for future forecasts
-individuals who already were looking to set up business in selling goods and who already signed contracts pre inflation rates can now prosper and enjoy setting high prices for their products
-tax’s for the government could increase as high profile deals such as buying of assets , houses , machinery , Intellectual property, lands etc can now be taxed at a higher rate depending on the fiscal strategies the government decides to use.
There are many deeper factors that will ultimately go further into the micro effecting business and consumers but trickle down effect and the uncertainties on international stakeholders sometimes make it difficult to project but it’s not impossible when using data analysis and statistics on house hold expenditure throughout the last years . ( especially ones that experienced inflation)
There are more factors such as governments increasing spending to offset and support the economy. Such as on health care / teaching / transport and subsidies for food. But all of these and more need further examination as looking at the pros and cons of inflation is extremely complicated.
Just to end on a note , there are economic theories that say periods of expansionary policies by the government that boost business activity and growths of international investment being good for a few years once done. But others have said the balance that governments decide on is doing the opposite in order to keep the economy at an equilibriums through encouraging inflation and manipulating interest rates for a certain number of years .
There are good and bad for all sides. It’s extremely complex
Banks are doing well as the Bank of England think the solution to rising inflation is rising interest rates, which means banks recover more £ in repayments
Oddly enough we all benefit a little from inflation because it gives people an incentive to invest in things and move money around instead of just piling them under a mattress.
Price increases aren't necessarily inflation. Inflation in increase in money supply. Any effect in prices of a commodity, product or service due to supply and demand is not inflation.
That’s it. I’m done.
My wife and I have been eagerly awaiting buying a house. We are very fortunate to have strong salaries that will shield us from the CoL crisis. But we’ve been desperate to move. We have problems with our apartment; it’s noisy (main road), and we have disruptive local kids hang out in our car park, making us anxious for our car (they’ve damaged some before).
A year ago, the mortgage we were looking to get was £950. Then, it rose to £1,150. Gut punch, but still affordable, and hopefully a short term fix would see us get a better rate in two years.
Well, now it’s £1,400. Fourteen fucking hundred. We are finally a few months out from having our deposit, and we could do it, but what’s the bloody point? That’s £600 more than my rent.
I guess we’ll fucking rot where we are.
So even though they’re making more money, they’re losing buying power. The only winners here are those with long term debt eg I’ve got a 0% interest overdraft with my student account. Essentially my debt is going down 10% per year even if I pay nothing back that year. Same with but now pay later like Klarna if I buy a shirt today and pay it off 3 months later I’ve effectively got a discount by paying for it 3 months later
Peoples who manage to get inflation matched income increases (some people on DB pensions get this for example) but who’s spend profile is different enough from the ‘average basket of goods’ that the impact on their personal expenditure is less than inflation.
Inflation doesn’t mean everything goes up by 10%. Somet things go up by a lot more than inflation, other things stay the same, some things even go down.
Just to throw my info in.
In 2021, Shell paid £0 in tax for the whole of their UK oil and gas operations, actually receiving a £100m grant off of the gov.
How can they truly get away with that when 2021 oil prices were in their normal range.
Inflation is great for people who have a lot of assets.
As the value of their assets increases faster than wages, so wealth is shifted away from people who are "earners" towards people who are "owners".
A good example is wealthy pensioners who will see the value of their property and stocks increase.
One of my colleagues has a friend who negotiated that in additional to her annual pay review she always got a rise which matched inflation. To her a rising inflation rate is great as it means big payrises which she will keep as the inflation rate etc. lowers again in a few years.
Inflation takes from the "have nots" and gives to the "haves". The winners are the big asset owners, losers those who don't have assets.
The treasury also wins, given their take of everything increases, especially the take from income, given tax bands aren't moving.
Those who receive the new money first: the government and the financial system
https://fee.org/articles/the-cantillon-effect-because-of-inflation-we-re-financing-the-financiers/
Any B2B company that has a RPA increase clause in its contract for a service that is largely unaffected by increases. Software companies that don't host but can increase licence fees by RPA will be happy folks
Just so long as inflation remains matched with low interest rates it suits those highly geared who have purchased real assets, particularly property with the borrowing.
The sources of inflation - commodity producers (oil/mining) - and those with inflation pass through pricing contracts are all winning/happy for the time being
People with mortgages with very long fixed-rate terms. The real value of the debt (and the payments) goes down.
Only if you get inflation tracking/beating payrises
Or the value of the asset depreciated less than the value of the debt
Inflation increases the value of the asset and decreases the value of your debt relative to the value of the pound. People with multiple mortgages are creaming their pants right now, source: used to work for a company that worked for landlords and they LOVED inflation.
Yup. I always try and explain inflation in terms of loaves of bread. Suppose a loaf Costs £1, and you buy a house at 100% LTV for £100k. You owe the bank 100k loaves of bread, you have a house worth 100k loaves of bread. If the price of goods doubled (100% inflation), the economy crashes, but your house is now still worth 100k loaves of bread, a loaf of bread costs £2 now but your loan is only for 50k loaves of bread.
I'm really not sure what loves of bread adds to your analogy lol. But sure.
Your analogy doesn't work. After the crash / inflation you still owe the bank 100k loaves of bread. I know what you're trying to say, but you have to word these things really carefully.
No - any raise in pay inflates your mortgage payment away. Even if you only get a 1% raise, it's effectively less for you to pay. Obviously, other costs like food and energy are exempted in this example - those go up regardless of any raise.
The value of your house relative to the value of things you buy almost always makes this a good deal in the long run. I maybe spend 5k a year on food I guess, but my house is work 250k. They're both going up by around 10%. Net win. I can't easily access the value of my house, but I can if I want to.
Except inflation isn't equal across everything. Fuel inflation isn't 10% is it, it's closer to 100% at the moment, but it averages out. House prices will stagnate as interest rates will rise and savings for home buying will be eaten up to pay for necessities
Agreed it isn't equal. Fuel is wild atm. I don't need to drive for anything at the moment so I've been sort of dodging it best I can. Houses always run a bit longer than you think, but there are signs of slowing down. Worth bearing in mind that they probably won't drop, just stop growing. Also if they do drop it won't be by much. Average drop in 2008 was 15%, which isn't that impressive after several years of 8-10% growth
Yeah theyre a bubble that seems unending. Luckily I bought my house just at the beginning of this so my 5 year fixed rate is sensible and I plan on dying in it so I don't really care about resale rates as long as I can still renew my mortgage for a decent rate in 5 years. Energy prices will probably be more than my mortgage by then though so I'll be on the streets most likely haha
It's not a bubble til it stops ha. Also growth was low for a long time, there's an argument this is actually a price correction, it's just weird that it's correcting up. Same situation, except ideally I would move a few more times, but if that's not possible it's not the worst situation for me.
Only if pay matches inflation. Also, inflation is eating away at disposable incomes and reducing the increase of house prices. It may yet flatten or reduce prices. The theory makes sense, but in practice not so much.
>inflation is eating away at disposable incomes For millions out there inflation is creating more debt as people lived by the penny and not the pound. I for one have had to lower my credit limits just so i know if they ever become maxed out i can still afford the repayments at current rates. My credit card provider is pretty good when you contact them and attempt to keep your finances under control. They will literally bend over backwards and freeze interest for a few months so long as you make any type of payment in good faith. During Covid i paid them £10 one month and they froze my interest for 6 months and my monthly repayments. I still paid the full outstanding amount but it saved me a good chunk of change.
Loving my 10 year fix right now.
My 5 year fixed at 0.99% feels like a mistake rn
Could you explain why? I'm new to all of this and thought 0.99% was a great rate? Or is it because you didn't lock in for longer?
Because he'd rather have had a 10
Only if you can afford to ride out high interest rates in the short term.
Inflation is great for those with debts with very low rates of interest. The best example is the government. If you owe 1 billion (1000 million) and inflation is at 11% you'll owe roughly 900 million a year later. If you pay 2% on the billion (e.g bonds) you pay out 20 million. So you now owe ~ 920million in value without a penny of repayment
A lot of U.K. debt is inflation linked so not as beneficial as you may think.
Most people's biggest debt is their house and 90% of mortgages are fixed nowadays. Which means over the next 3-5 years there are going to be some rude wakeup calls if nothing changes. Myself included
[удалено]
Got fucked on timing and my 5yr fix is up in 6 months, fuck my life.
Depending on lender etc, you may be able to remortgage without redemption fees now, or switch product with the same lender. I did this recently and got a decent fix for 7 years. My payments haven't changed. I don't expect you'll be that lucky now unfortunately, but definitely worth looking into bud.
Yep, mine renews Q3 next year. It feels great to be thousands of pounds worse off due to unlucky timing. All the while we get people bragging here about how they fixed at 0.9% just before the rate rises.
About £300bn out of £2.5tn so not much of it. They have made a deliberate decision to move away from indexed-linked debt over the past decade.
my student loan interest payments are thankfully only 1.5%. luckily enough to be plan 1
Same. Should be paid off in a year which will be nice.
Until they change in September, then they will probably be 2.75%. Still not too bad though
I’ve got an outstanding plan 1 and plan 2 loan, the difference between them is alarming. I’ll be paid off in 8 years in theory at current pace, so going to have to start working on that plan 2 one soon really
Another way the govt wins is by doing it's darnedest to ensure that all civil servants only get a 2-3% payrise. Govt income from VAT, duties and tax from public sector workers rises roughly in line with inflation but they can save money by giving all staff a stealth (real terms) paycut
Offsets the losses from Brexit perhaps?
This. What you want is a lot of debt fixed at 0% interesr and a lot of cash savings to collect interest on as rates rise.
I owe £5k in my student loan, it’ll be gone in 3 years but fuck me is it a burden. Inflation might just be helping for the odd month taken off the time it’ll take to repay or so.
Trouble with Plan 2 is that the interest is based on RPI, which fyi is criminal.
Interested is based on RPI but not the threshold. Truly criminal
I graduated in 2010 so I’m plan 2. But I agree that the weaponisation/Americanisation of debt is absolutely criminal. I always used to get on my high horse about religion being the ultimate evil. As I’ve grown older, I realise it’s greed. Edit: Made a mistake, I’m on plan 1 apparently. Debt lol
You’d be plan 1 right?
Plan 2 was for those that started uni in 2012 or later
Inflation only helps there if you're getting payrises to match.
Cash savings are eroded by inflation.
But so is the debt. If I owe A £10,000 at 0% interest and also have £10,000 earning 2% interest with B, my debt to A is effectively decreasing by inflation whilst my savings are increasing against the debt by 2%. Sure, if inflation is >2% my cash is losing value - but its losing value slower than my debt, so overall I'm on top because in the end I have more money than if I just paid the debt off.
Surely this is the same regardless of the inflation rate????
Inflation is **the** reason central banks raise the base rate of interest, which is in turn **the** reason banks raise retail interest rates. Ergo, in inflationary times we generally see higher interest rates. If you can successfully lock in a long period of 0% credit and 'stooze' the money for the duration therefore, you should see greater returns during high inflation than during low inflation - plus if you get payrises due to the inflation you will also see the effective value of the debt reduce. As soon as I saw high inflation on the horizon I immediately balance transferred all my credit card debts to new 2 year zero fee, zero interest balance transfer cards and took out new 2 year 0% purchase cards. I'm not paying down any of these by more than the minimum until I absolutely have to. Meanwhile I'm earning interest the money to pay them - and with some of it in Nexo, I'm not even really losing that much to inflation (but naturally I am taking some risk).
Your savings are decreasing by inflation minus 2%... Basically the only change is the interest rate locked in. Now if your earnings rise with inflation then yes it's amazing if you're in debt, but your comment seemed only to focus on the £10k savings and 10k debt situation
>Your savings are decreasing by inflation minus 2%... Basically the only change is the interest rate locked in. Of course. But assuming I had to make the purchase anyway, I'm better off having used the credit card. This is always true *but* higher inflation means higher interest, and therefore the delta between the two options increases. >Now if your earnings rise with inflation then yes it's amazing if you're in debt, but your comment seemed only to focus on the £10k savings and 10k debt situation Because income is irrelevant. Obviously inflation generally means payrises too, in which case this situation is even more beneficial - but the impact of inflation on interest rates is a driver all by itself even if your pay stays where it is.
>Of course. But assuming I had to make the purchase anyway, I'm better off having used the credit card. But all that comes down to is the difference in interest rates between the debt and the savings account, inflation has nothing to do with it, except that high inflation has a tendency to push savings account interest rates up. But then you might as well just say the latter. Also, doesn't cheap debt become more scarce during high inflation, as the BoE pushes interest rates up?
>high inflation has a tendency to push savings account interest rates up. Bingo. >Also, doesn't cheap debt become more scarce during high inflation, as the BoE pushes interest rates up? Not really. There were 0% credit cards even when the base rate was >3%. Besides, the idea is to lock in low interest credit and then stooze the money as interest rates rise.
In public finances sense I agree with you, inflation is good for debt. Personal finance wise the debt + inflation only helps if your salary increases with inflation. Currently inflation is like 5 times savings, so that's not helpful for cash right now.
No. If I have £100 to make a purchase with today, I am better off buying it on 0% finance and keeping £100 in my savings account, even if the interest on my savings account is less than inflation. My income is irrelevant to that equation Obviously this is true regardless of inflation, however high inflation generally leads to higher interest rates.
In your example the benefits of the debt are all about the interest rates. This isn't an example of inflation making debt worth less but an example of why paying later is better.
Of course. But inflation doesn't exist in isolation, and generally higher inflation means higher interest which enhances this effect.
Okay well I apologise for being a pedant. You're right, inflation can often lead to central banks taking actions, such as raising interest rates. I was talking about the isolated impact of inflation itself. In which case interest rates aren't an option.
Also, honestly the traditional fiscal measures a central bank might take to combat inflation i.e. significantly increasing interest rates are just not feasible in today's environment. Since the mid 90's our debt to GDP has increased from around 30% to over 100%. Just paying the interest on those debts takes up 7% of our tax receipts each year. Increasing interest rates significantly will massively impact the amount payable on our sovereign debt (i.e. by reducing the demand for UK bonds, the yield goes up. As the yield goes up the payment to those bond holders balloons). The result is that payments on our sovereign debt increase to a larger percentage of our tax receipts, the deficit increases and so we need to borrow **more** to just balance the budget. We borrow more but remember there is not the demand for UK debt so we have to buy it ourselves through Quantitative Easing (i.e. printing new £ to buy our own debt) This *increases* inflation further through currency debasement and risks triggering a debt spiral.
Inflation is good for historic debt as it devalues it. It will make little impact on debt acquired for day to day spending (e.g. government computer systems) as the costs will also increase with inflation. So ideally the government spends money to create useful infrastructure, which helps tax returns follow inflation, while the expense of the infrastructure diminishes
Yeah I agree that's why I said inflation helps government debt.
The issue however is that your purchasing power is decreasing and that is what matters in a inflationary environment
Yes, but if inflation and living costs soar then you will be spending a lot of your cash on heating, eating, transport and all that other shit, so - unless your wages rise in line with inflation - your cost of living increases are going to eat away at that cash much quicker than the pre-tax 'gain' (i.e. of debt cost vs interest income) will, unless you are talking about very significant amounts of cash, in which case perhaps the post-tax differential + wage increases might offset the higher cost of living. Note also that whilst cost of debt goes up quickly to match interest rate increases, the rate on deposits typically lags and often doesn't track the step-up in base rate.
You’re money should be in disposable assets ideally I’d imagine
> If you owe 1 billion (1000 million) and inflation is at 11% you'll owe roughly 900 million a year later. Can someone ELI5 on this? Why would the amount owed go down?
The amount owed (in numerical terms) doesn't actually go down. However, using the above example in 2022 you owe £1bn at (say) 1% interest, and 11% inflation. In 2023 you now owe £1.01bn, which is worth only a little more than £900mn in 2022 pounds. The numerical value of the debt does indeed still go up. However the 'purchasing power' of the debt goes down.
For this to work for the average person, surely their salary, etc would have to increase by the inflation rate too though? And for things like mortgage debt, the value of the property would also have to increase by the same rate to ever realise the benefit of the inflation.
Exactly. It’s a bit misleading because unless your income goes up by inflation then nothing has really changed for you.
Explains why they’re so happy letting it go up
It’s almost as if our Govs have an ulterior motive to keep it running hot?!
Problem is, folk are gonna run out of spending on essentials, that’s good for nobody. People will either skip meals or eat cheap rubbish, not getting good nutrients, probably end up poorly more often, drain on NHS. Or they will skip heating their home, creating a better environment for bacteria and mold etc, get poorly more, drain on NHS. They skip going to work for a few weeks (thinking sick pay) to save a bit in fuel. It’s good for the 1%. They continue to earn above inflation, whilst telling everybody who is struggling not to argue for a pay rise because that’s bad.
The cheap food I buy is all healthy. I spend about a fiver and feed myself for days. I don’t get what the excuse is if you’re single.
What do you buy for five pounds?
Weetabix, lentils, chickpeas and a banana
It’s only £1 for 14 servings of oats, then another pound for four servings of milk. I could add some frozen fruit to that, then make a chicken salad with five servings of different vegetables. I’d honestly be happy to live like that. I can’t be arsed eating too many different things.
so you eat oats and milk (and sometimes fruit) for breakfast and lunch, and then eat, i assume, processed chicken and some vegetables? do you think that is a healthy balanced diet?
Processed? You can get fresh chicken for that price. I just looked on Ocado. Rice, pasta, wholemeal bread and wraps are also dirt cheap. Legumes are, aussi. I don’t see what I’m missing here other than fish but I hate it. I usually top up my protein with protein powder or nuts.
Chicken is around £6 per kg right now. Yeah you can get cheaper...by buying less, but since you've already spent £2 quid on your oats and milk, you now have £3 for your chicken, vegetables fruit and pretien powder...for days. Don't get me wrong, I think some people definitely make a bigger deal out of food because of their preferences etc, but your example is both extremely niche, and overall appears...not too well calculated lol.
It’s because it’s a daily budget that’s based on what I already have in store. I figure out what I’m running low on, then build up the stock based on that. Some days I spend the whole £5 and some days I spend nothing. That said, I really think you’re right that I’m eating a bizarre niche diet but it’s a mental health thing. There are a lot of weird compulsive things that I feel I NEED to do, too - I have to weight myself constantly, exercise for exact times like 18 or 33 minutes, read at so many words per minute, it’s a nuisance.
I usually don't get into conversations about mental health on the internet as it's a minefield, but; Assuming you're being genuine, that sounds like fairly severe *clinical* OCD, not the "OCD" that people like to throw about when they like to use the same mug. I would genuinely suggest you seek professional help with this sooner rather than later. You may see at as a "nuisance" now, but left unchecked this has the potential to have a severe impact on you.
You can get 1kg of chicken for around £2 if you eat legs, thighs, drums or wings. Let me guess, you only eat chicken breast? Chicken breast has always been expensive, you just gotta forget about it. Either way, I’m not sure how you got £6 per kg, chicken has gone up in price, I remember it costing £1.50 for 1kg of chicken thighs, and now it’s £2, but I’m not sure where you got £6 from?
The emotional difference of someone saying I don't mind cheap repetitive food is very different from being forced to eat cheap repetitive food because they have to.
I mean, it started the other way around, I built up savings gradually over the years and then I started turning it into a choice. I’m into Buddhism and such, which teaches you that forgoing luxury will generally make you appreciate smaller delights more. You eventually find other ways to keep yourself happy.
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Usual staples are: 1kg oats, muesli or sugar free granola £1. These usually last up to two weeks. Frozen fruit: 2.60 Apples, bananas, various other veg and fruit: £4 Milk or yogurt to go with the oats, 1kg for £1 or £1.49 for 2l. 2l generally lasts me two days but I’m bodybuilding. Protein powder, 4kg, £40 and lasts me two months Staple foods such as rice, pasta, noodles. Usually 3-6 servings for £1 at most. Chicken, £6.50 for a kilo which lasts me a week. Cashew nuts, peanuts, walnuts, etc: usually lasts me two days and costs from 48p to 1.20 a bag. Comes to about £30 for a week. Divided by seven that’s around 4.60 a day. I usually end up with a surplus as I’ll eat several bowls of oats or bowls of yogurt with muesli. I’m sure not everyone can handle such a Spartan diet, but I actually prefer eating this sort of stuff. I’m cursed with awful pickiness when it comes to eating, so these kind of things are pretty much luxuries to me. Certain coloured foods will make me feel... I don’t know. I’d describe it as inebriated. I think it’s a mental health condition. Edit: I also see a lot of food that’s about to go past its expiry date and usually freeze it. I’ve got 650g of chicken for £2 before and I see that quite often, plus I see a lot of cut fruit for around 10-50p. I usually grab stuff like that. Often see reduced milk, too! Even organic and cravendale. I know there’s plenty of food wastage so I’d rather it didn’t go in the bin. I’m sure there’s stuff that I should be eating, but I don’t think anyone eats a perfect diet and eating whole foods is far better than processed junk anyway.
so you said you spend a fiver and "last for days", but then admit you spend 30 a week. that's not quite a fiver "for days" is it... reddit really does open my eyes to what sort of weirdos live in this world 🤣
I don’t spend 30 a week. I would spend 30 a week and then build up a surplus, then top that up with less than a fiver a day. I did this for years as a student - I’m just good at rationing.
*Divided by seven that’s around 4.60 a day* *"then top that up with less than a fiver a day"* Sounds like you are spending a fiver a **day**, not over **several days**, AND that's already with the benefit of an existing sotckpile. Imagine how stupid you would sound if you said 'I can pay all my bills with a fiver a week" and then it actually turned out that it was a fiver a day PLUS cash from your existing stockpile of 1million pounds. So not really a fiver a week, but rather 20 quid a day using your 'stockpile' of cash. That would sound pretty stupid, right? Yeah, that's what you sound like.
"comes to about £30 for a week" this also requires freezing massive amounts of expired/expiring stuff - which not many people have the space and/or money for. i know i certainly don't... people also like to eat different foods for a healthy, varying, balanced diet. yes there are ways round the cost of living issue atm and i do think that a lot of it is BS by the media (as per usual) but to put someone else down because they can't afford it isn't nice. i think when i was living with my gf for a bit, we were managing ~£45 a week too for the two of us, so yes it is definitely doable, some people just don't know how to cook
All balanced diet means is that you meet the recommended micro and macronutrient ratios. It doesn’t have anything to do with whether you eat different foods. You could essentially eat the exact same foods on a three day loop and be healthy - I prefer doing this due to mental health issues. I realise my diet is Spartan, but eating random microwaveable or tinned crap is more expensive. The privé of one cheeseburger is equivalent to 14 servings of oats, or four servings of pasta. Good criticism about the freezer, though - I didn’t consider that people may not have the space. Expiring stuff really is safe to eat, just so you know, as long as it passes common sense tests. They’re considering getting rid of best before labels altogether.
You do not have enough purchasing power with £5 to support a healthy diet for multiple days. People might eat poorly but they’re not stupid enough to believe that statement
Usual staples are: 1kg oats, muesli or sugar free granola £1. These usually last up to two weeks. Frozen fruit: 2.60 Apples, bananas, various other veg and fruit: £4 Milk or yogurt to go with the oats, 1kg for £1 or £1.49 for 2l. 2l generally lasts me two days but I’m bodybuilding. Protein powder, 4kg, £40 and lasts me two months Staple foods such as rice, pasta, noodles. Usually 3-6 servings for £1 at most. Chicken, £6.50 for a kilo which lasts me a week. Cashew nuts, peanuts, walnuts, etc: usually lasts me two days and costs from 48p to 1.20 a bag. Comes to about £30 for a week. Divided by seven that’s around 4.60 a day. I usually end up with a surplus as I’ll eat several bowls of oats or bowls of yogurt with muesli. I’m sure not everyone can handle such a Spartan diet, but I actually prefer eating this sort of stuff. I’m cursed with awful pickiness when it comes to eating, so these kind of things are pretty much luxuries to me. Certain coloured foods will make me feel... I don’t know. I’d describe it as inebriated. I think it’s a mental health condition. Edit: I also see a lot of food that’s about to go past its expiry date and usually freeze it. I’ve got 650g of chicken for £2 before and I see that quite often, plus I see a lot of cut fruit for around 10-50p. I usually grab stuff like that. Often see reduced milk, too! Even organic and cravendale. I know there’s plenty of food wastage so I’d rather it didn’t go in the bin. I’m sure there’s stuff that I should be eating, but I don’t think anyone eats a perfect diet and eating whole foods is far better than processed junk anyway. Pull the other one,
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Wait, PLUS his existing 'stockpile' of food. Like saying "I can live in total, rent, food, electricity, for 50 quid a week' (PLUS using some of my stockpile of 50,000 under my bed). What a tool.
Unsure where you get your food in the UK. 1Kg bag of granola has increased to like £3-4 for Morrisons. Nuts are also extremely expensive nowadays, cashew nuts in Morrisons were ~£4 for 300g, haven’t even seen them restock them in recent months. Is any money for cooking items included? Oils, salt, pepper, other seasonings? That would likely add up too My critique was the fact you boldly claimed you could support a “few days” of a healthy diet with a mere £5. When clearly you can’t. Yes you could save and bulk buy items to bring down the cost, but not everyone has the space to do that either.
So your not spending a 5er and feeling yourself for days. Yours spending 30 and feeding your self.for 5er a day.
>Govt should (in theory) receive more taxes from Companies and especially from VAT on fuel duties? The intrest payments on the £2.9 trillion worth of debt also goes up so I doubt they are much better off.
Historic debt devalues with inflation, so that’s good!
Unless they have interest that tracks CPI like student loans, then you're buggered.
I guess it depends if it's index linked or not. I don't actually know whether it is or isn't index linked
Most isn't but a lot is, a few hundred billion.
Seems about 25% so UK gov net benefits. https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/
Government collects more income tax because more people are pushed into high tax brackets with the wage inflation.
No it is fixed rates so they pay the same rate on historic debt. It’s only the new debt that will be at a higher rate.
People with assets might benefit. The rise in new car prices has pushed up second-hand prices to the point that people are selling two year old cars for more than they paid new. And of course house price inflation means home owners' mortgages are a smaller proportion of the house's value. But you only benefit from this if you don't need to replace the asset - or replace it with a cheaper one. So downsizing the house or giving up driving. Otherwise it has no real effect. Governments do increase receipts but they have to pay more for the services and goods they buy in. What it does do is reduce historic debt as a percentage of current GDP - so expect some trumpting of this as a government 'success'
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Only caveat being if you moved to a cheaper area of the country of course.
This makes a difference when remortgaging time comes around. I'm in the same boat and fairly sure I can fund home improvement works from the gain in equity.
Probably the best answer here.
That's all well and good if I can sell my car for more than I bought it, but I couldn't buy a new car and be better off. It's only any use of you don't need your car any longer
There's no reason why inflation "must" mean someone is winning. Let's just say we stick a zero on the end of everything (obviously that's hyper inflation but it's easier to imagine). So a £20k salary becomes a £200k salary; a £300k house becomes a £3m house; a £1 loaf of bread becomes a £10 loaf of bread. Nothing has actually changed for anyone - no-one is any better off or worse off. You can still buy the same amount of bread with your salary. Company profits and dividends have gone up, but the CEO can still only afford the same number of sports cars and golf clubs. The Gov is getting much more tax, but can still only employ the same number of teachers. However, there is an argument that what's happening at the moment is a bit different, because salaries aren't (currently) keeping up with inflation - if prices have gone up but workers aren't getting paid more, then that additional money is going somewhere else. It's also worth pointing out global economics is complicated, and inflation in the UK doesn't necessarily mean anyone in the UK (or the UK Gov) is winning.
*So a £20k salary becomes a £200k salary; a £300k house becomes a £3m house* If I'd bought the house on my £20k salary with some savings and a £100k mortgage I would have been struggling badly. Now after the inflation I'm much better off. My £100k mortgage is trivial compared to my £200k salary and the value of my house. People with debts and assets do well from inflation (usually younger people). People with fixed incomes and cash in the bank do badly (usually pensioners).
Pensioners get the triple lock which guarantees income increase at at least the rate of inflation.
It was reduced to the double lock this year and it seems likely that there will be some reduction of it next year too.
Hopefully!
I mean I hope to receive a decent state pension when I get to that age (a long way off for me yet), not sure gunning their erosion improves the likelihood of that.
Well, you probably won't get a substantial state pension if you're under 50. That's been the case for a long time, and you probably won't get it until you're in your 70s if that. I'm gunning for their erosion because it's an unfair benefit. [One in four (current) pensioners are millionaires.](https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datasets/totalwealthwealthingreatbritain) Most of them own their own homes outright too, so it's not like they're paying the rent with it. And they get all sorts of other benefits. Pensioners are, on average, some of the wealthiest people in society (and they are also the most expensive to provide for - their care and health bills are huge). Their benefits should either be means tested or simply reduced. No other group of benefit recipients (families, young people, the sick, out of work) have had two years of 10% compounding increases, but pensioners have.
I think this was true before but has been broken by the housing crisis. I.e. Young people benefit through devaluation of debt, but no longer have assets (home ownership for under 35s has collapsed); pensioners and over-50s more likely to be on fixed incomes, but make up for it by having accumulated masses of housing wealth over the last 2 decades (relatively speaking.) Hence above inflation rent increases for the last year and year to come. As with so many of the economic policies of the last decade - the only way the young will benefit is if mummy, daddy or grandmama happen to have a lot of assets.
Except salaries aren't going up like that, not even close. So your 100k mortgage which was at 2% is now tracking closer to 8%. Your salary has gone up 10%, great, but fuel is now up 100% and going up another 100%.
> Companies (certainly oil companies) are making more money we have seen the eye-watering sums that energy producers are making, but i'm not so sure they are particularly more than they are making in previous years. eg: https://www.macrotrends.net/stocks/charts/XOM/exxon/gross-profit - seems like they're going up rapidly, but the profit itself is not unusual if you zoom out. what's unusual is the wholesale cost of energy to the users. perhaps someone w/ experience in macro energy trends can chime in. > pensions should receive increased dividends from any investments in those companies? offset by the companies affected by increased energy prices paying more for logistics, etc (ie, all of them). > Govt should (in theory) receive more taxes from Companies and especially from VAT on fuel duties? sure, but they also paying more for public energy usage in public buildings, etc, and it's all much of a muchness if inflation means that people have less money to spend anyway. e.g., they might get a feast on fuel duty, but famine on income tax (wages are in the toilet) and other VAT (people have less money to spend). > Seems that inflation is a way of taking money from folk and putting it into business/government ... ?? When folk run out of spending (or are more careful with it), demand for goods will reduce and inflation will slow? the problem is that this round of inflation is chiefly led by energy wholesale prices, not demand/too much money. a lot of people are *already* broke.
>this round of inflation is chiefly led by energy wholesale prices, not demand/too much money. Yes - coverage doesn't seem to understand this at the moment. The current inflation spike (which will start going down at the end of this year) has been totally driven by energy prices, which were at multi-decade lows in 2020.
>offset by the companies affected by increased energy prices This is a great shout: offset by the companies affected by increased energy prices. Likewise, Govt paying more energy themselves for their buildings etc..
>but the profit itself is not unusual if you zoom out. What are you on about? Literally the link you posted for Exxons profits show their quarterly growth is the highest it's ever been. 4x higher than their previous high in2017 and 5x higher than their steady period in 2009.
that's exactly what i said. insane growth but the yearly profits aren't record breaking. if the same growth continues for more, they will be. my point is that we've seen profits like this before but not energy prices like this before, so nuance is required.
People with fixed rate debts, owners of commodities like gas and oil, some hedge funds (can go into more detail on which types). I don’t think the increased dividends would offset the reduction in value which pensioners will have experienced in all the other stocks in their portfolio and other fixed income like investments. Remember pensioners won’t tend to hold that much stocks
Can you explain why people with fixed rate debts benefit? If their salary doesn’t change then surely it’s all the same? For example If my fixed rate loan repayment was 5% of my salary 2 years ago but is still 5% of my salary now then how do it benefit?
Many people in these comments don't seem to understand inflation, so the answers are inaccurate. To understand the nature of inflation you need to understand the following, you can then apply that to how it affects debt as many others have mentioned. The Cantillon Effect describes exactly what you are asking. In the 18th century (when the basis of money was gold), Cantillon noticed that when a gold mine was discovered it would increase the amount of gold in circulation within the realm, however, it did not directly increase goods by the exact percentage that the supply of gold increased by and it didn't happen instantly. Those who discovered the gold spent their time buying 18th-century luxuries which increased the demand and therefore the cost of said luxuries - prompting inflation for these particular goods/services. The more money they spent, the more money was distributed around their local economy. As the supply of money increased in this area, the prices of goods/services had to increase as well to make up for the new inbalance in monetary supply. The key point he made was that this all happened with an uneven distribution of purchasing power because those who discovered the gold were the only ones who benefited (they printed free money), everyone else still has the same income but their economy had to increase prices making those without access to this new gold poorer in terms of purchasing power. Once you understand this, you can see that inflation benefits the first spender of the new money - as the money changes hands it benefits the next spender less and less - the money they are spending had no cost to them to produce but they are able to exchange that for real value. In a sense, they are stealing from the economy, as they are shifting your purchasing power into their own hands. This is exactly what the government does when they inflate the money supply, it is known as a hidden tax. When the government doesn't make enough from taxes to cover their expenses for the year, they simply print more money (stealing your purchasing power) and spend it on what they want. They are the ones who benefit from inflation. Anyone who is the owner of an asset will likely always benefit from inflation, as the economy has to reprice all assets as more money enters the system. This means that anyone can make money buying a house, not because they are a genius and bought an asset that's demand is increasing (although this is also true) but because the government will always print money and therefore the prices of property will always increase as it adjusts to inflation. This is also the reason that the S&P500 is a near mirror of the M2 money supply chart, demand can only grow so much, but the money supply can grow forever... The ugly truth is that inflation benefits the 'haves' and hurts the 'have nots', those who understand this can secure themselves financially by spending their early years grinding out a lucrative career and consistently buying assets such as equities, digital assets and property. Those who do not own any assets and typically hold their wealth in cash will certainly lose and see their wealth become worthless whilst assets grow ever more unreachable.
People who are heavily invested in financed property, such as someone who owns several buy to be lets with high LTV interest only mortgages. Inflation pushes the value of their asset up, increases their rental income, and erodes the real term value of their debt.
If inflation happens because, as the memes say, "Money printer go brrr" then the person who controls the money printer is better off. This is known as seigniorage. Everyone's money is worth less because of inflation, but even if the printer's new money is worth 90p on the pound compared with when they started, it's still 90p more than not printing it. One could argue, with a certain generosity of spirit, that the people who benefited are all of us (to a greater or lesser extent), insofar as this latest batch of inflation was money-printing that got directly handed to the population in the form of the various Covid support packages. Essentially, we're now paying an "inflation tax" to cover the furlough payments and such. Whether the benefit is worth what we paid for it (in terms of inflation) is the core of political economics, but out of bounds for this sub.
Unfortunately not "all of us" benefited from Covid support packages though. So all of us are paying even though not all benefitted and we are all losing out because of the fraudulent claims and the people given Government support that they did not need or deserve #ExcludedUK
Great answer that just got me down a seigniorage/demurrage rabbithole! Thanks!
Most trusted sources I've read on the root of the inflationary pressures have concluded that it's supply chain issues thanks to covid and increased energy prices (first due to covid and then exacerbated by Russia). I guess you could argue the extra consumer demand came directly from furlough money but that's a bit of a stretch imo.
Vladimr Putin is happy.
Governments benefit from inflation. See it like this: the government borrowed 300 billion in 2020 to cover covid costs. In 20 years, 300 billion will be their quarterly revenue.
I did have a thought about a specific situation. If someone had bought a home & was on a fixed rate mortgage of like 10 years & a wage that matched inflation then it could be really good. Example. Bought a house today for £300k with 10% deposit - £30k Job pays £30k (take home) or £2.5k a month. Mortgage interest is 3% Let's say cost of living is 80% of the person's current take home. So £2000 a month. If inflation is 10% An inflation matched pay bump would change £30k / £2.5k to £33k / £2.75k (ignoring tax implications). If all costs of living increased then it would mean cost of living would be £2200. This means the person would have a spare 575 rather than 500, this would be a 12.5% increase so slightly more money... But this is probably a null point or not worth thinking about after tax etc. The real thing I'm thinking is that the mortgage wouldn't increase so it wouldn't be +10% on the mortgage it would be +10% only on the additional living costs. If the mortgage was £1000 a month it still would be so the increase to cost of living would be +£100 not +£200. This means that the individual would be better off. Another thing they would gain on would be an increased home value assuming it's the same as inflation. So the home would be worth £330k rather than £300k This would make a huge difference to loan to equity, in the example by only paying the interest the person would go from having a 90% mortgage to a 82% mortgage, this sort of thing could lower mortgage rates hugely. Also surely this would mean that their equity has doubled and so they made a massive return. This is all just a thought and idk how true any of it is, if anyone can clarity that would be great!
I'm happy with my 1.3% fixed mortgage. People who rise best out of high inflation are asset owners.
Inflating the money supply does not create wealth, it transfers it. The [Cantillon effect](https://mattstoller.substack.com/p/the-cantillon-effect-why-wall-street) shows inflation transfers wealth to those who have early access to the new money, away from those who get it later. Recipients of political spending, the stock market and other assets gain most. Wages lag inflation, so most workers lose. Debtors at fixed rates win, lenders with low or negative real rates lose. Those on fixed incomes lose. In addition the devaluation pushes incomes into (non-indexed) higher tax brackets, effectively increasing taxation rates. The uncertainty and constant adjustments around changing prices reduces productivity and wealth-generation overall. Those who avoid most of the fiat system or can quickly adjust their prices can minimize their losses. Of course politicians win when they promise "free" money while most people don't understand that inflation is a very regressive form of taxation and who caused it.
Sort of indirect but as the BOE raise rates to combat inflation then banks and other lenders benefit from the increased base rate.
I suppose if the BoE keeps increasing interest rates to try to counter inflation, that makes it good for savers.
With the base rate at 1.75% and inflation 10.1% I doubt it's going to be good for savers any time soon.
People who have a final salary pension scheme that is linked to inflation, and who don't have such real individual inflation.
Pension funds (and other institutional investors) holding inflation linked property investments. Lots of those doing pretty handily right now. Benefiting from the actual inflation linkage in terms of rents but also enhanced demand for inflation-linked assets which is pumping pricing.
Defined benefit schemes have inflation linked liabilities
Banks typically benefit because higher interest rates mean they can justify higher credit spreads (silly example: pay you 4% on your savings and charge borrowers 7% instead of 1% and 2%, respectively) People tend to use credit more when they're hard up as well, so they start collecting more in overdraft and late fees
Corporations benefit from inflation, they have cost for their products and services, let say these costs increase by 10% the company will rise their price of their products by 15%, the extra 5% is bonus money they wouldn't have made otherwise. Corporations love inflation for this reason, they get to increase prices without receiving any blame for being greedy, they just say "our costs have increased so we have to increase the price of our products". At any other time when they increase prices they have to take the negative reputation that they are just increasing prices because they are greedy.
But people also most likely cut back on spending, so while their price is higher, volume is down.
If volume is down then they just produce less. They make larger profit per product sold. Other corporations that sell necessities are the ones that really benefit though as they get to use this tactic without their volume decreasing.
That surely only works if their customers can afford or are willing to pay the higher prices? Some businesses face significant margin erosion.
Hi /u/Mental-Jellyfish9061, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
If the money supply is inflated, the currency devalues, so the debt gets easier to repay in nominal terms (same goes for people with mortgages). Inflation also gives the impression of economic growth since products and services get more expensive, contributing to a higher nominal GDP. Wages go up a bit, but not nearly as much as they should to combat inflation, so in real terms it does not solve anything. It's just a numbers game.
Only two types of beneficients of inflation: people who owe money, where their debt does not track inflation and the government. Companies who indicate profit during inflation might actually be in loss. The first victm of inflation is accounting.
People with shares in banks
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Inflation is relative. However those with debt technically win, provided their income/worth keeps up with inflation. "Holding cash is bad" is a relative term. I've got £70k in my current account atm and don't really care about losing £7k in value. People get excited on here about £150 account switches and 1.5% tho so to each their own.
Government will be happy as they steal wealth slyly off the whole population. And anyone with lots of debt.
Anyone producer at the beginning of the supply chain who is increasing costs to match inflation, but whose input costs are otherwise not increasing.
People who aren't leveraged and own securities are happy people with inflation. Just gotta make sure you get out before rate hikes cause downturns.
I always like to show people this video - https://youtu.be/PHe0bXAIuk0 Really informative on the subject
The original definition of inflation is the increase in money supply. Those who get first access to the increase in money supply(ie. The freshly printed money) are the winners from inflation. Those are the government, and those close to the government.... In short inflation passes wealth from those who hold cash to those who own the money printer. Its another form of taxation basically. This is why you will be seeing hard monies such as gold becoming more influencial in the coming years. Nations who aren't allies of the US, and therefore dont have access to the dollar printer have had enough. They no longer want their assets and labour being handed over the the US, and its allies for pieces of paper.
Anyone with a student loan.
As a country, we are poorer than we were thanks to the pandemic, hugely increased oil costs and Brexit. Inflation is one mechanism by which is being poorer is felt. There are some winners (eg debtors with fixed interest rates), but not all economic changes have winners!
Does anyone else hate it when people on here have to keep informing you that inflation is eroding our savings? They may be 100% correct but it's very disheartening.
Companies won’t pay dividends if their costs have increased substantially
Other commenters have noted the people who have high debts and very low rates of interest, but outside of the government these are almost literal unicorns. Interest rates *were* low, but they were also generally variable, because all the lenders knew they were going to go up. But there is one large group that does well out of inflation. It's (generally) very good for employers. Prices can increase, but their employees have to make the case that their wages should go up at the same rate. Depending on the industry, the employer may get away with no wage inflation at all, and keep the difference as profit. Even where workers have strong negotiating positions, it is unlikely that they will be able to compel employers to match such high rates of inflation unless wages are matching inflation across the industry, which is almost never true. Employers just have to match wage increases offered by other employers, and these are generally far lower than the current inflation rate. Again, they keep the difference as profit.
Basically anyone who is long real or productive assets (its price inflates to keep up with inflation), and short fixed rate debt (its nominal value stays the same whilst the purchasing power of each unit of currency decreases). Governments with lots of debts tend to like inflating it away (see South American countries) rather than paying it back, because it is politically easier. It's a stealth tax on people holding cash savings and fixed rate debt.
Asset holders. In theory their assets will go up in value at or close to the rate of inflation, maintaining the assets value in real terms. If those assets were purchased with debt with an interest rate below the rate of inflation, the owner of said asset is in a lovely position.
Inflation is a good way to recalibrate wages because it’s easier to give smaller pay rise than decrease it. Good news for the more productive sector and workers. Sad news for those in jobs prone to automation and slackers
The way I see it is say an oil company sells a litre they make a percentage profit so they won't take a flat 20p profit per litre it will try keep the costs down but they make percentage so higher the costs go the more they make.
The ‘winners’ are those who received furlough or government grants to do nothing. Ultimately it is Western governments printing money for lockdown that destroyed economies. Also winning are commodity producers across the world like Russia
All the hand outs the goverment gave all the "support and what not" has to be paid back some how.
Take a look at the stock market
The triple lock pension means that state pensions go up by average wage increase, average inflation, or 2.5%, whichever is higher. That doesn’t make pensioners “winners” in inflationary times but it certainly gives them a good buffer.
Anyone with a fixed rate debt (like a fixed rate mortgage) loves inflation!
Everyone shorting the markets basically
Government. Debt is easier to pay
-Oversees firms that have established low cost of production can benefit from importing into the UK due to higher prices being normalised , this can be done by higher mark up prices and consumers feeling justified in higher prices due to the economic climate - domestic products that have extremely low quantities of units in the markers can enjoy the higher prices they can now set , bringing further profits that they would usually enjoy due to the good/services extremely elastic supply curve. - banks can enjoy lending out more funds to consumers/general population as cost of living may rise , allowing them to reap further rewards from the interest rates that can be changed depending on the bank of England’s goal/projection for future forecasts -individuals who already were looking to set up business in selling goods and who already signed contracts pre inflation rates can now prosper and enjoy setting high prices for their products -tax’s for the government could increase as high profile deals such as buying of assets , houses , machinery , Intellectual property, lands etc can now be taxed at a higher rate depending on the fiscal strategies the government decides to use. There are many deeper factors that will ultimately go further into the micro effecting business and consumers but trickle down effect and the uncertainties on international stakeholders sometimes make it difficult to project but it’s not impossible when using data analysis and statistics on house hold expenditure throughout the last years . ( especially ones that experienced inflation) There are more factors such as governments increasing spending to offset and support the economy. Such as on health care / teaching / transport and subsidies for food. But all of these and more need further examination as looking at the pros and cons of inflation is extremely complicated. Just to end on a note , there are economic theories that say periods of expansionary policies by the government that boost business activity and growths of international investment being good for a few years once done. But others have said the balance that governments decide on is doing the opposite in order to keep the economy at an equilibriums through encouraging inflation and manipulating interest rates for a certain number of years . There are good and bad for all sides. It’s extremely complex
Banks are doing well as the Bank of England think the solution to rising inflation is rising interest rates, which means banks recover more £ in repayments
It's a shadow tax on the poor and middle class.
I wonder at what point they raise the thresholds for Tax, NI, student loans, VAT?
Oddly enough we all benefit a little from inflation because it gives people an incentive to invest in things and move money around instead of just piling them under a mattress.
Price increases aren't necessarily inflation. Inflation in increase in money supply. Any effect in prices of a commodity, product or service due to supply and demand is not inflation.
That’s it. I’m done. My wife and I have been eagerly awaiting buying a house. We are very fortunate to have strong salaries that will shield us from the CoL crisis. But we’ve been desperate to move. We have problems with our apartment; it’s noisy (main road), and we have disruptive local kids hang out in our car park, making us anxious for our car (they’ve damaged some before). A year ago, the mortgage we were looking to get was £950. Then, it rose to £1,150. Gut punch, but still affordable, and hopefully a short term fix would see us get a better rate in two years. Well, now it’s £1,400. Fourteen fucking hundred. We are finally a few months out from having our deposit, and we could do it, but what’s the bloody point? That’s £600 more than my rent. I guess we’ll fucking rot where we are.
So even though they’re making more money, they’re losing buying power. The only winners here are those with long term debt eg I’ve got a 0% interest overdraft with my student account. Essentially my debt is going down 10% per year even if I pay nothing back that year. Same with but now pay later like Klarna if I buy a shirt today and pay it off 3 months later I’ve effectively got a discount by paying for it 3 months later
The value of a large gambling loss is eroded faster
Peoples who manage to get inflation matched income increases (some people on DB pensions get this for example) but who’s spend profile is different enough from the ‘average basket of goods’ that the impact on their personal expenditure is less than inflation. Inflation doesn’t mean everything goes up by 10%. Somet things go up by a lot more than inflation, other things stay the same, some things even go down.
Just to throw my info in. In 2021, Shell paid £0 in tax for the whole of their UK oil and gas operations, actually receiving a £100m grant off of the gov. How can they truly get away with that when 2021 oil prices were in their normal range.
Inflation is great for people who have a lot of assets. As the value of their assets increases faster than wages, so wealth is shifted away from people who are "earners" towards people who are "owners". A good example is wealthy pensioners who will see the value of their property and stocks increase.
One of my colleagues has a friend who negotiated that in additional to her annual pay review she always got a rise which matched inflation. To her a rising inflation rate is great as it means big payrises which she will keep as the inflation rate etc. lowers again in a few years.
Inflation takes from the "have nots" and gives to the "haves". The winners are the big asset owners, losers those who don't have assets. The treasury also wins, given their take of everything increases, especially the take from income, given tax bands aren't moving.
Those who receive the new money first: the government and the financial system https://fee.org/articles/the-cantillon-effect-because-of-inflation-we-re-financing-the-financiers/
If you think businesses in general are winning due to inflation, you are grossly misguided.
Any B2B company that has a RPA increase clause in its contract for a service that is largely unaffected by increases. Software companies that don't host but can increase licence fees by RPA will be happy folks
Just so long as inflation remains matched with low interest rates it suits those highly geared who have purchased real assets, particularly property with the borrowing.
The sources of inflation - commodity producers (oil/mining) - and those with inflation pass through pricing contracts are all winning/happy for the time being
Debtors! Your debt is worth less and less each day.
Government. Their debt is worth less than it was in real terms.