Currency Wars and Inflation

One of the areas that is having a direct impact on us all as a result of all this political upheaval is the movement in the currency markets – how much the £ is worth against the $ and the Euro.

If you’d prefer to listen to my thoughts on this rather than read on, please click this link:

We know that the £ has fallen against both the $ and the Euro – but apart from holiday money, what are the potential impacts on you?

Well if you’re thinking of buying a high cost item that’s imported – such as a car – I do it sooner rather than later. Prices are staying the same just now but that’s going to start changing soon.

Then again if you export goods out of the UK then your profits just went up by around 20

But we’re already getting the sense that prices are set to increase generally. We’ve seen it with fuel and there have been news stories about big companies like Unilever arguing with the supermarkets because their costs are going up and they want to pass on some of that pain.

You may think that buying British will keep things cheaper – but it can be a complex picture. For instance, if you want to buy a Mini, it’s made in Britain. But a lot of its component parts will come in from abroad and be costing more to import…so the price is going to go up soon.

We’ve been here before of course. Eight years ago there was a very similar event when we hit the banking crisis. Inflation had a brief spike but there was no wage inflation because jobs were scarce and there was higher unemployment so you could get away with keeping peoples salaries the same.

If you employ people, you’ll know that this time round it’s different, the labour market is tight. As an employee if you’re good at your job and if you feel you’re not getting what you’re worth then there’ll be someone else who wants you for more money.

Of course, as an employer, if there are people you feel are overpaid, or that you would rather not keep, then letting inflation erode their income is one way of rebalancing things in your favour.

You also need to keep a close eye on your pricing at times like these. If your staff and other costs are rising then you either need to have policy for increasing your prices to your customers. Managing inflation is always a challenge but if you keep a close eye on your costs and pricing you can get through it.