The global pandemic and the Russian invasion of Ukraine have both caused significant disruption to the world’s supply chains (e.g. food, energy, and transport). This has meant the price you have to pay for most goods and services has gone up significantly.
When the general price of goods and services increases in an economy, we call this inflation. We should expect a low level of inflation in a healthy and growing economy. However, it is always important to consider the effects of inflation when making or reviewing your financial plan. Over the long term, inflation has averaged around 2.5%, yet in the previous 12 months to December 2022 inflation has soared to over 10%. This level of inflation can be devastating for your savings. So, when you look at what your cash savings will be worth in the future, don’t be fooled into thinking they will have the same purchasing power as they do today.
Your investment may fall or rise in value and you may not get back what you put in. Past performance is not a guide to future performance.