Citywire for Financial Professionals
Stay connected:

View the article online at

Feeling deflated about inflation? Budgeting is the answer

Author of The No Spend Year says budgeting is the key as inflation continues to outpace wage growth. 

Feeling deflated about inflation? Budgeting is the answer

The cost of living is more expensive than it was last year and although it’s no longer hitting millennials hardest, now is the time to take a look at your budgets.

The latest official data shows inflation - the cost of goods and service - has remained steady at 2.6%. This ‘headline’ figure is based on the consumer price index (CPI), which includes things like food, transport and cinema tickets but doesn’t include housing costs, which is included in the retail price index (RPI).

Although inflation is above the Bank of England’s 2% target and is higher than last year, meaning things are costing you a bit more, there is some sort-of good news: inflation for people aged under-30 has actually calmed down.

For the past four years, inflation has hit youngest people disproportionately, which is probably one of the reasons why you feel so skint.

Figures from Aviva show for 48 months in a row - from February 2013 to January 2017 - inflation for under-30s has been above the headline rate. This is because this age group spends a greater proportion of their cash on housing and education, which have risen above the headline figure for a long time. This problem was compounded because they also spend a smaller proportion of their money on food, so didn’t feel the benefits of the fall in food prices.

Conversely, older people have been less badly hit as they spend less on housing and education and proportionately more on food.

The Aviva figures show that throughout 2014, 2015, and 2016, older consumers were experiencing price inflation below the headline rate, and in 2015 prices were actually falling for older consumers.

It is often assumed that older people feel inflation more keenly but these figures show otherwise. Only recently have the tables turned, as the pound's fall following the Brexit vote sparked an acceleration of food price rises.

While it’s interesting to see the impact age can have on how inflation is felt, in reality no-one is a winner. We all have to pay more, regardless of age, and it means we all have to manage our money more carefully.

Working age people also need to factor in that pay increases, which have been stuck at 2%, haven’t been matching inflation anyway. That means things cost more but you aren’t getting paid more, which isn’t a great place to be.

If you’ve noticed your money isn’t stretching as far, now is the time to reassess your budget and look at how much everyday items are costing you. A steady creep up in prices in your local coffee shop, weekly groceries, or transport can all add up and catch you unaware if you’re not looking or preparing for it.

Budgeting is the key. If you know how much things cost then you can make sure you can cover them. Keep a record of everything you’re spending for a couple of weeks and see if that extra round of drinks at the pub will mean you will be scraping by at the end of the month.

It’s not exciting to budget, in fact it’s boring and depending on your financial situation, can be a bit depressing. But it’s one of life’s necessities and will prevent you dropping into your overdraft or being forced to rely on the credit card. Getting into debt when you’re feeling skint already will only make a bad situation worse.

If you have some savings that’s great, but they are also affected by inflation. It’s likely that your cash account isn’t paying above inflation interest. That means the value of your money is reducing and the higher inflation climbs, the more the value of your cash savings falls.

It may be time to start looking at investing the money and trying to make a better return. Of course this isn’t without its risks and the value of your money can go up or down, but leaving it in a cash account means it will only go one way: down.

Inflation shows no sign of going away and the pressure is on when it comes to your money. The best you can do is be prepared for more rises.

3 comments so far. Why not have your say?


Aug 17, 2017 at 17:18

"For the past four years, inflation has hit youngest people disproportionately, which is probably one of the reasons why you feel so skint."

Yep, my youngest daughter has been at uni, and has cost me a whole lot more than the other four did, that's for sure.

report this


Aug 17, 2017 at 21:26


report this


Aug 18, 2017 at 14:32

It's highly misleading to just refer to "older people" as avoiding inflation when the Aviva Age Inflation Index is specifically referring to those aged 75+.

In any case, it was pointed out some time ago by the Institute of Fiscal Studies that official figures underestimate effective inflation rates for less well-off pensioners.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.


The Accumulator: FTSE see-saws on trade war fears

by Michelle McGagh on Jun 22, 2018 at 14:57

Sorry, this link is not
quite ready yet