Managing Inflation

We recently wrote about high inflation and the Rule of 72. Since then, UK inflation has risen again to 10.1% and predicted to get higher as the energy price cap changes in October. 

To assist charties looking down the inflation barrel, here are some thoughts from our long experience of managing charity finances.

• We are alert to the dangers of high and persistent UK inflation, but UK inflation is not the same as overseas inflation, especially in the US. What are the implications for the investment strategies of UK spenders given many charities are now predominately global investors?

• The three largest components in the UK CPI calculation are housing, transport and food/beverages but many charities spend their money on wages, not on this wider basket of goods included in CPI. Regular pay (exc. bonuses) is currently 4.7% according to the Office of National Statistics, so much less.The ability to pass on price increases as inflation bites is widely considered a shrewd strategy, except when it comes to energy companies like Centrica.

• Apart from the punishing effect of inflation on fixed incomes, there is also a parallel issue of the gradual withdrawal of Central Bank support for bond prices. What is the relative contribution (in the UK) of both these events?

• As markets and assets prices fall, their future returns will improve. Unless of course you invest in zombie companies supported only by cheap debt. Surely a time for good active management?

While Yoke will not predict the future of inflation, it seems even Central Banks are not that good at it, we must assume we will have to suffer higher inflation for a while to come. This will but pressure on your finances and if you are worried about what actions to take, please do not hesitate to contact us.