What is inflation?
Russell Waite and Julia Warrander, of Affinity Private Wealth, reply:
WHEN thinking about the question ‘top of mind’ for 2022, our thoughts turned to inflation. Most residents of the Island contribute to its economic wellbeing in some form or another, with the common denominator being that we are consumers. Each of us spend our hard-earned money on goods and services, the cost of which we tend to take note of – or, should we say, the rising cost. For the first time in a generation, prices are rapidly heading upwards and we have been reflecting on the impact this might have.
We found an interesting research piece on the topic of inflation, published in 1979, which focused on spending habits. Not, we should add, for the ground-breaking conclusion we all change our purchasing behaviours in response to perceived price rises. No, what was noteworthy was the conclusion consumers were generally not well informed about price indices. Today we live in an age where information is everywhere and extremely accessible – but does this mean the concept of inflation is any better understood?
This was a question the UK-based Behavioural Insights Team (BIT) – a non-profit organisation which generates and applies behavioural insights to inform public policy – posed themselves a couple of years ago. It resulted in the Bank of England paying much more attention to how they communicated their quarterly inflation report, making better use of ‘visuals’ and ensuring the content was more relatable by using words like you and us rather than ‘the Bank’. The BIT team recognise there is still work to be done, specifically around how the report is communicated by third parties. TV, newspapers and – increasingly – social media are the channels through which most people gain exposure to economic messaging and determine overall understanding.
What does inflation mean to us?
Affinity is a wealth-management business and the impact on the future value of global assets, during a period of rising inflation, is a very important consideration for us. Moreover, as described earlier, this current environment represents a sea-change to what we have seen for some time. For example, in the context of low interest rates, UK inflation – currently running at 5.4%, the highest since 1992 – is pretty penal for savers and investors. Through this year, communicating and enhancing understanding will be our focus. We too will be working on visuals, ensuring concepts are relatable and making certain our messaging is clear. In an industry infamous for its use of jargon, we will be doing our best to avoid price indices RPI, HICP and PCE – thanks to the work of BIT!
