Inflation has now hit a 40-year high, with published figures showing the consumer price index (CPI) rising in the year to May 2022. This signifies heightened hesitation about financial stability, especially for the most vulnerable people.
Inflation remains well above the Bank of England’s 2% target.
This is despite the fact that the central bank is raising interest rates in an attempt to deal with inflationary impacts.
The base rate is now 1.25%, pushing it to its highest level in 13 years.
The increase from 1% to 1.25% represents the Bank of England’s fifth consecutive increase.
That’s more than £100 extra since April, worrying a lot of people who are already struggling with their bills.
Similarly, inflationary rises have also been attributed to the rise in the energy price cap in April, which is also fueled by rising global energy prices.
However, this is not the end of the misery on this front as the situation will only get more difficult.
Energy prices are set to soar to a staggering average annual bill of £2,980 in October when the next energy price cap comes into effect, according to Cornwall Insight.
Many retirees hoped to be able to pick themselves up after leaving the workforce and not worry about their finances.
In the current climate, that is unlikely to be the case, and many will look to the government for help.
Chancellor of the Exchequer Rishi Sunak said: ‘I know people are worried about the rising cost of living, which is why we have taken targeted action to help families, getting 1,200 £ to the eight million most vulnerable households.
“We are using all the tools at our disposal to bring down inflation and fight rising prices – we can build a stronger economy through independent monetary policy, responsible fiscal policy that does not increase inflationary pressures and driving our long-term productivity and growth.”
Rising inflation, however, may present better news for the state pension outlook.
Yesterday Prime Minister Boris Johnson promised the triple lockdown would return next year after it was temporarily suspended.
The inflationary CPI figure in September 2022 is likely to be used as a measure by which the state pension increases.
With the Bank of England predicting that inflation will reach 11% by the end of the year, this could mean a windfall increase for state pensioners.
Analyzing what rising inflation means for retirees, Alice Haine, personal finance analyst at BestInvest, said: “While savers may consider reducing or stopping the pension contributions they make, as instead they focus on paying their daily bills, it’s best to make cuts elsewhere because any money for pensions and investments has a better chance of beating inflation thanks to the good weather.
“In turn, this will provide a growth rate that combats the effects of inflation on your money.
“Pensions generally grow faster than inflation: between 2015 and 2019, pension funds grew by an average of 7.4% per year, well above the 1.53% inflation observed over the same period. .
“There are also generous tax benefits from paying a pension, as your employer will also contribute to it and the government will increase your contributions with tax relief.
“Plus, your money will also benefit from the magic of compound interest along the way.”
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