How not to get beaten by inflation

With inflation at 9%, and the bank rate at 1% you’re not going to get a real return on cash. But there are steps you can take to beat inflation, says Merryn Somerset Webb.

Jerome Powell
Jerome Powell: talks tough, but will he act?
(Image credit: © JIM WATSON/AFP via Getty Images)

This week we learnt something I suspect most of us already knew: inflation is high and rising. UK data for April has the consumer prices index (CPI) rising at an annual rate of 9%, a 40-year high. Measured by the retail prices index (which CPI replaced) it’s 11.1%. It was last 11% in February 1982, having breached 11% for the first time since January 1952 in January 1974. In short, 11% really doesn’t happen very often.

However, here is something that has never happened: 11% RPI and 1% bank rate. In early 1974, the rate was 12.7%. If you’d had cash in the bank, you’d have made a real return (ie, beat inflation) for much of the 1970s. There were nasty bits in the mid-1970s when RPI inflation breached 20% and rates were just 15%, but in all, holding cash in the 1970s wasn’t as destructive to your wealth as you might have thought.

Two points on this. In the 1970s, inflation was caused mostly by external factors (such as the sharp rise in energy prices in 1973). High interest rates proved all but useless in tackling that – at the end of 1973, inflation was 10.6% and rates 13%.

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Our central banks might talk a big game on rates, but look back to the 1970s and you might think they are merely indulging in gesture economics. They can’t get rates to 11%-plus without crashing everything – and given that they know it won’t work, why try? Federal Reserve chair Jerome Powell this week said that “no one should doubt” his resolve. The Fed, he says, will push until inflation comes down in a “clear and convincing way”. Bet it doesn’t.

Making a real return

The other lesson is that you won’t make a real return on cash this year. Every penny in your account will steadily lose large amounts of its value (until you give in and spend it). After ten years of 9% inflation, £100 will be worth £42. An aside: I am glad, for the purposes of this example, that UK inflation is 9%; the online calculator I used only goes up to 9%. Presumably the young people who designed it could not fathom anything higher. Time for a refresh.

The commentary on all this is miserable. Seven out of ten people plan to cut their energy consumption; two thirds are changing their shopping habits; 20% plan to borrow to cover expenses; and so on. What should you do? The papers are full of tips: stop buying coffee, buy cheaper-brand goods, bulk buy, rent out your driveway (earn “passive income”!). None of this is much help – if you really want to survive this, you need to beat inflation, not be beaten by it.

Start by ensuring you get what interest you can on your cash (Investec offers 2%, so you can cut your real-terms loss to a mere 7%). Shift some money into one of the few things with any chance of beating inflation – listen to our podcast ( on this (commodities and more commodities, says Barry Norris).

But most vital of all, make more money. An MP was much mocked this week for telling people to get better-paid jobs to beat the cost-of-living crisis. Her detractors have a point, but they miss one too: the labour market is very tight (the unemployment rate is 3.7% and there is more than one vacancy per unemployed worker). If you move job you will almost definitely get a better deal; stay put, and you have an excellent chance of getting one too. I have said this before, but with the RPI at 11.1%, it is worth saying again: ask for a pay rise.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.