Living with 9% inflation

February 04, 2023

The Impact of Inflation on Your Finances

Until last year, you may have been forgiven for thinking that inflation was a thing of the past

And, after many years of low inflation, many experts were much more concerned about the risks of deflation, i.e. falling prices. However, a combination of supply issues from the pandemic, and the Ukrainian invasion, meant that inflation came back with a vengeance. And, depending on the measure you use, CPI, CPIH, RPI, etc., inflation hit double figures last year.

The good news is that most experts predict inflation has peaked

And the consensus is that it will fall back to a more normal 3% within a couple of years.

Inflation is a fact of life, affecting everything from the prices of goods and services to the value of money

As the cost of living rises, your finances can feel the squeeze, making it difficult to save and plan for the future. In this blog post, we’ll take a closer look at how inflation can impact your finances and what you can do to protect your hard-earned money.

So What Exactly is Inflation?

Inflation is a measure of the increase in prices of goods and services over a period of time. It’s expressed as a percentage, with a higher number indicating a faster rate of price growth. The UK’s inflation rate is typically measured by the Consumer Price Index (CPI).

How Does Inflation Affect Your Finances?

The impact of inflation on your finances can be seen in several ways. Firstly, as the cost of goods and services rises, you may need to spend more money to maintain your standard of living. This is a problem for those on a fixed income, such as someone in retirement relying on income from a level annuity. Or someone whose income doesn’t rise at the same level as inflation. Of course, this can make it difficult to save money and plan for the future.

Secondly, if the interest rate on your savings is less than the inflation rate, you’ll see the real value of those savings fall. Consequently, whilst savers might be rejoicing that they can now get an interest rate of c4% for a one year fixed rate account, they are actually worse off than before. This is because with an inflation rate of 9%, 4% interest equates to a loss of value of c5% a year.

On the other hand, Borrowers can be big winners from high inflation. This is because the value of the money you owe will decrease as the cost of living rises. However, if you have a variable-rate loan, your monthly payments could increase as interest rates rise to keep pace with inflation.

Protecting Your Finances from Inflation

There are several steps you can take to protect your finances from the effects of inflation:

  1. Diversify your investments: By investing in a range of different asset types, you can help reduce inflation’s impact on your portfolio. For example, stocks, bonds, and property can all perform differently in different inflationary environments, allowing you to benefit from the strengths of each asset class.
  2. If you’re at retirement age and have pension funds, consider purchasing an index-linked annuity. These are designed to provide you with a guaranteed income that increases each year with inflation. Thereby protecting your income against the effects of inflation.
  3. Keep an emergency fund: Having an emergency fund can help to protect you from the effects of inflation by providing a cushion of cash that you can use in case of unexpected expenses.
  4. Stay informed: Regularly checking the inflation rate and monitoring the economy can help you to make informed decisions about your finances and prepare for changes in the cost of living.


Inflation is a fact of life, and it can significantly impact your finances. However, by taking steps to protect your money, you can ensure that you’re prepared for the future and able to maintain your standard of living. Whether you’re investing, saving, or managing debt, staying informed and taking a proactive approach to managing your finances in an inflationary environment is essential.

If the rising cost of living has got you feeling the pinch, and you want help with your savings and investments, don’t worry. You can count on the expert team at Rowley Turton, Chartered Financial Planners in Leicester. Our highly-qualified advisors are here to assist you in navigating the challenges of inflation and finding personalised solutions that work for you. Don’t hesitate to contact us for help.