Inflation at 9.1% – This is only the start

Current state of things

We currently have a cost of living crisis here in the UK! You don’t get paid enough to own your own home, you can be in full time employment and forced to rely on food banks, people are having to go out and strike to get an inflation adjusted wage! energy companies are making record profits yet everyone’s bills have doubled! Cost of fuel is through the roof, even after a drop in oil its still pushing £2 a litre.

Basically its all gone a bit wrong and the people in charge are… well laughing and jeering at each other in parliament because they got their pay rise so why would they care?

This nightmare has already happened before, between 1973 to 1974 inflation went from 9.2% to 12.3% and interest rates had to hit 17% to curtail the runaway train that was the UK economy!

It also happened in 1990 where inflation soared to 9.2% and interest rates where at 14%

Today inflation hit 9.1%. I am sceptical of that figure and suspect it is closer to 14% but the parallels between 1973 and 2022 are there. We are seeing outrageous inflation, cost of living crisis, strikes, torries in charge! Wont be long before there’s rolling blackouts and anarchy comes back in fashion… Sex Pistols 2.0? Disney keep your mitts off that’s my idea!

Inflation Graph from ONS – does not contain Junes 9.1% figure.

This all seems so bleak, there really is no way of sugar coating this. The money you earn will now buy less so in real terms you are poorer. Every penny you have saved is decreasing in value, so you’re getting hit from two sides. Three if you count the highest peace time tax rates and not to mention Millennials are poorer than previous generations! (That’s not a “Woe is me” comment – just a statement of fact)

Basically the state of affairs is pretty dire and this only feels like the start. I don’t expect things to get better, at least not for a few years.

I am not a doomsayer mind you, just a realist and you have to be realistic about these things. There is a silver lining though, or at least there is a silver lining in the future.

The Silver Lining, or… A silver lining?

The bank of England are making some moves to slow the economy by raising interest rates! they working slowly and methodically. They correctly predicted the 9% inflation rate so the modelling they’re using is working. This is music to my ears, by raising interest rates the cost of borrowing money goes up which means people are less inclined to spend and more inclined to save.

This simple action slows the economy and  brings down the price of things like housing. Great news for a lot of folks who will have found themselves in a position where they have a lot of savings and now suddenly affordable housing (Assuming Lloyds doesn’t but them all).

If house prices drop small landlords may enter negative equity and be forced to sell thus making more housing stock available for the masses. Which sucks for them but is great news for the public.

Even with all these facts taken into account I am still optimistic about the economy and investing, in fact I am even more optimistic about investing now its all crashing! Why? Because the lower it goes the more I can buy which means the more I benefit when we start to become bullish.

The stock market like the economy runs in cycles. Greed and Fear, Bears and Bulls, Feast and Famine, the problem is that the people in charge know that positive sentiment in the economy is good for voters so instead of letting the market rise and fall sensibly they do stupid things like offer 40k to first time buyers for new builds, and print loads of money.

We have enjoyed an extended feast it is only right that we endure an extended famine.

What I plan to do to benefit from inflation

I can only assume a lot of the big movers in the stock market are a lot quicker off the mark than I am. I would wager that they have been investing in things like Wheat, Iron, Colgate, Unilever and supermarkets. The things people don’t stop using even when they are hunting for pennies behind the sofa!

I will investigate that in my own time, but these are either overvalued or soon will be.

Gold is getting out of reach for me as well, the time to buy gold was really when everyone was focussed on stocks. There is always silver which is more volatile but that has been cheapening on recession fears. Not something I would expect to happen to a commodity.

So that really leaves cash. property and stocks.

In a high inflation environment cash is trash as the saying goes. You need to leave it somewhere making 10% a year or its doing nothing but lose value, at least if its in something like gold you know its going to do well in the short term.

Property is costly, maybe if there is a massive crash and it becomes cheap it would be worth it but in a high interest environment isn’t worth the risk.

That leaves me with stocks, I will be trying to buy things that have fallen out of favour, if property crashes ill snap up some REITS, if energy collapse ill get my hands on BP, if people start selling off tech giants I will have a piece of that pie.

I am a firm believer that the general public often make the worst choices at the worst times so I am going to be a contrarian investor and hope it pays off in the long run.

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