Inflation - what counts?

In a week where we are getting concerned about energy shortages and other inflationary factors, consider The Reverend Geoffrey Nutshell, Bursar of an Almshouse in 1621.

Over dinner one night he asked his colleagues what standard of living they would expect their successors to enjoy in 500 years’ time, in 2021. To a man (for they were all men) they agreed it should be similar, or slightly better than now.

Nutshell surveyed the room whilst saying Grace and realised that over 100 people had been involved in preparing that evening’s meal for their special guest, the Lord Mayor of London: 40 in the kitchen, 30 in serving and another 40 in clearing and washing up. As he drunk his 1583 vintage port he wondered if his colleagues thought that there should still be 110 people involved in delivering their meal in 2021, or would a dozen be acceptable if the same quantity of food and drink could be served (and perhaps a bit hotter too)? How lavish would things have to be to continue to attract such important guests as the Lord Mayor? If the value of their endowment (£100k) began to shrink would the almshouse become less important and less able to support all its different activities, including the dining?

Which measure mattered, he wondered? According to MeasuringWorth, £100k in 1621 would now need to be worth £20m today to serve the same meal (on an RPI basis) or £300m to have the same number of staff. But to continue to impress its dinner guests, the College Almshouse would need to be worth £5.6bn (preserving its share of the National Income). Nutshell realised that the Almshouse would never maintain its prestige value when it was reliant on piggy-backing on the endeavours other people’s companies, and nor should it. The money was there to serve a purpose and to Nutshell growing the endowment to maintain prestige failed the sin of pride, a greater sin, he noted, that the sin of gluttony.

If you want any advice about setting inflation targets, how much to grow in real terms, reviewing Investment Policy Statements, or selecting managers, Yoke & Co is well positioned to help.