Inflation & It’s Impact On The Young

Inflation & It’s Impact On The Young

Inflation is defined by Investopedia as;

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum

All in all not that exciting really.

If you ask the UK government about inflation then they will say that inflation is at 1.2% at September 2014 (RPI at 2.3% – FAQs), so a nice low and fairly consistent level.

But what is the impact of inflation on young people?

Young People & Inflation

The fact is that inflation is individual and personal to every person. A flat rate of inflation is misleading, for some people it will be higher, for others lower. Ultimately it is all about what you spend your money on.

Think of a young person, probably living at home, working at least part time and still in some education. What does that person spend their money on? I would suggest as a guide;

  • Going Out
  • Clothes
  • Travelling
  • Technology

Now wind the clock back to circa 1990 (when I fell into this bracket, ahem…), back then there was no Wetherspoons, no Primark or New Look, no Easyjet and anything tech related was expensive. Jump forward to 2014 and the price of quality TVs is much lower, play.com and amazon are driving down entertainment costs etc.

Over the last 5, 10, 20 years there is a demographic which has seen deflation. Their money can now buy more than it used to. For many young people inflation is not an issue, they are experiencing deflation and enjoying it.

But what does this mean for the future?

The Inflation Impact For The Future Generation

Bill Gross (if you have never read anything he has said then go google him now) made these comments earlier this week.

1- Young people should (and do) fear inflation because it means their retirement portfolios will be cut in half or more

2- But these days, deflation is just as dangerous a threat as inflation, because the economy has become dependent on inflation to shrink our debt

3- The problem is that the monetary policy approach that would ordinarily prevent deflation—printing more money—is not helping to create true growth. “Prices go up, but not the right prices. Alibaba’s stock goes from $68 on opening day to $92 in the first minute, but wages simply sit there for years on end,”

Whilst inflation is not an issue right now, it will have a bigger impact on the generation who are starting work now than any before it. Consistent low inflation is essential and that won’t change with next years election, for the UK to move forward inflation needs to be under control and at a level under 2% (but close to it…) to enable interest rates to stay steady, and for the UK population to keep repaying it’s debt.

By Dave Farmer

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