Inflation

Inflation in the UK has been above the target rate of 2% since 2009. Prices have been rising faster than wages and earnings, meaning that real household incomes have declined. However, inflation is forecast to fall sharply in 2012 as the impact of the VAT increase and energy price rises in 2011 drop out of the annual calculation. In the medium term there is considerable uncertainty around the future level of both inflation and growth - as both can be influenced by the wider state of the global economy.

What are the implications?

  • If real incomes continue to fall the level of donations from individual donors may fall (see individual giving).
  • If inflation persists, there may be a decline in industrial relations as workers demand pay settlements that reflect the increased cost of living, while employers and in particular the government attempt to freeze pay to reign in costs.
  • The Bank of England may eventually feel it necessary to raise interest rates to tackle inflation.
  • Pensioners on fixed incomes may be struggling as a result of increasing food and fuel prices.
  • The combination of higher than expected inflation and low interest rates may hit people who rely on interest from their savings.
  • The value of charity donations may be eroded by inflation as people continue to give in round multiples of £5 or £10.

Moving forward

  • How will you approach your next salary review in your organisation in light of the current inflation figures?
  • How will your beneficiaries be impacted by inflation - should you try and do more to help people on fixed incomes?
  • Could you do more to persuade your donors to increase the amount they donate (see individual giving) so that their gifts keep pace with inflation?

Inflation is closely related to interest rates. If higher interest rates would have an impact (negative or positive) on your organisation, have a look at this driver to help you think through the implications.

Want to know more?

Inflation Statistics

Published by: Office for National Statistics

Date: Monthly

Format: Web

What is it? An up-to-date monthly summary and chart showing how both measures of inflation (CPI and RPI) have changed in the past year.

How useful is this? This provides a good overview of the different pressures affecting inflation, The ONS is the body tasked with measuring the official rate of inflation, so this is the best source available.

Other comments:

Forecasts for the UK economy

Published by: HM Treasury

Date: Monthly

Format: PDF

What is it? Monthly smmaries compiled by the Treasury which compare and contrast independent forecasts of key economic indicators for the next year to two years, including inflation.

How useful is this? With many contradictory predictions in the press, this brings together a range of forecasts and provides a good overall view of where inflation is heading. The summaries contain detailed tables of data forecasts with the averages collated in easy-to-read charts. It includes forecasts from a number of different sources, including private sector organisations. While individual forecasts may not be reliable and the methodologies used will vary, the average figures provide an interesting way of gauging independent expectations of inflation.

What impact does inflation have on charitable giving?

Published by: NCVO / CAF

Date: May 2010

Format: PDF

What is it? A briefing paper discussing the impact of inflation on the value of gifts and planned giving.

How useful is this? The paper provides a good overview of how inflation can erode the value of gifts over time, which may help charities understand the cost of inflation.

Bank of England Inflation Report

Date: Quarterly

Format: Web/PDF

What is it? The detailed document explaining the UK inflation outlook, including the Bank of England's official forecasts, analysis of the underlying components of inflation.

How useful is it? The introduction generally explains the expected course of inflation clearly and concisely. It also includes fan charts, showing the predicted rate of inflation for the next few years, with the darkest shaded sections indicating the most likely path of the inflation rate. The document goes into great detail, and may be too technical for the general reader, but it explains the projections on which the Bank's Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the future prospects for UK inflation.

Other comments: The most recent report can be found by clicking on the "reports by date" link from this page.

 

Last updated at 18:13 Fri 13/Jan/12.

Discuss

How will this affect your organisation? Have you considered it during your strategic planning? Can you share any interesting relevant links?

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