Inflation in effectively rising prices.

25 years ago from today was about Feb 1989.
if one looks at the RPI (retail price index) over the past 25 years, inflation has increased by 143%.

Thus to put it bluntly of someone retired in Feb 1989, would need to have pension income grow by 143% to maintain purchasing parity, and thus avoiding a decline in living standards.

Simple inflation calculations show that an increase in prices if 3% per year, in 20 years, if one’s income does not rise, you are only able to buy 50% of the goods in the year 20 compared to the year 1. Or another way of looking at it, in 20 years prices effectively double.

Here is a simple example of 3% inflation.

2014: A load if bread = £1.00
2034: A load if bread = £1.81

2014: Baked Beans = £0.70
2034: Baked Beans = £1.26

2014: Six Eggs = £1.50
2034: Six Eggs = £2.71

This really brings home the cost of living crisis that we see today.
When incomes are fixed and we have inflation on basic items, the vulnerable suffer and can’t afford basic items.

Final point on house price inflation, a home today compared to 1989 has on average risen by a whopping 231%, showing hard assets have risen faster than retail inflation, and if that house was bought as an investment, rental income too would have be received as well as the house price inflation.

Thus holding assets that beat inflation are hard to guess, but one thing is for sure, inflation destroys hard earned savings and is a wicked consequence that creates a spiral of poverty for decent people on low incomes, and our vulnerable retired citizens on modest and fixed incomes.