Knowledge Article

Rising prices – inflation, the background

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We are all feeling the effects of inflation, increasing energy, fuel and the price of basic foodstuffs affect us all.

The Government Actuary’s Department has posted a blog article recently – Inflation, its personal – written by Christopher Ward, Actuary.

The article provides a useful update on the scope and cause of rising prices. It says:

“We are in a period of high inflation of prices for goods and services. The Office for National Statistics (ONS) shows one of the inflation indices has increased by 6.2% in the 12 months to March 2022.

“This is the highest that CPIH (Consumer Prices Index including owner occupiers’ housing costs) has been since 1992. Among the main components of this increase are transport costs, such as petrol and diesel and the price of second-hand cars.

“During the pandemic prices for some goods and services fell, such as for eating out and holidays abroad. This reflected a rapid fall in demand which quickly shifted with demand gradually returning and supply then becoming challenging. Lockdown and workforce availability were key causes, but another factor was the reliance of so many products on semiconductors.”

This reference to the shortage of semiconductors is a real concern for manufacturers of consumer goods.

The post continues:

“They [semiconductors] feature in ever more numbers of products such as computers, cars and even kettles. The demand for semiconductors has been outpacing supply.

“This has been compounded by other factors, such as the surge in early retirements during the pandemic and increasing energy prices due to the geopolitical situation.

“These factors and increasing semiconductor production can be managed with a view to bringing prices back down again. However, solutions such as building new semiconductor manufacturing facilities take time, so until then, prices will continue to increase.”
It is likely that inflationary pressures will continue to affect our personal financial position and our businesses for some time.

Readers who have concerns about the best way to manage these inflationary pressures are invited to call for an informal discussion.

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