This week I received an email from Igloo Energy informing me that their tariff will be increasing by 14% for a typical dual fuel household. Not the first such letter reminding me that prices are rising.

Whether it’s in conversations I have with clients or in the news I hear on the radio, the subject of inflation is never far away.

There are stories of builders walking off site without giving notice because they can earn so much more working on another project nearby.

And the news this week is of a Christmas ruined by a shortage of truck drivers that will leave the shelves bare in shops across the land…and we’re only in September.

Average weekly earnings increased by 8.8% in June, while job vacancies increased to 953,000 in May to July 2021 (Source: www.ons.co.uk).

Looking ahead, in its August 2021 Monetary Policy Report the Bank of England stated that, “CPI inflation is projected to rise temporarily in the near term, to 4% in 2021 Q4…before falling back to close to the 2% target.”

And herein lies the crux of the inflation debate… Is what we are seeing a temporary spike, or are there signs of a more entrenched spiral emerging?

The base effect of rises in wages from the lows reached at the peak of the Covid crisis last year are undoubtedly impacting the figures. In addition, at the end of June there were still 1.9 million employees on furlough (Source: www.gov.uk), and many of these jobs may no longer exist once furlough ends.

What is clear is that the Bank of England’s position hints at a reluctance to increase interest rates in the near-term. That in turn means that the High Street banks are unlikely to increase their rates: good news for borrowers, but not so positive for depositors.

The best cash ISA rate on the market is currently 1.25% (Source: www.moneysupermarket.com), but only if you’re prepared to lock your money away for five years.

Investors with money in the bank therefore find themselves facing a difficult choice: whether to leave funds on deposit earning a rate of interest that, in the short-term at least, will give them a negative real return, or to invest in risk assets with no security of capital, at stock market valuations that already look stretched on some measures.

The answer lies as always in rising above the noise and adopting a long-term approach. Cash should be kept in the bank to fund planned future expenditure and emergencies, and funds should only be invested in a way that still allows for a good night’s sleep.