Inflation was a lonely corner, now consumers need an IFA

I went to a presentation by a fund manager about 18 months ago and one of the topics addressed was that of inflation. He detailed that he had concerns about the re-emergence of inflation and that it was 'a lonely corner' when in discussion with other market professionals.

How right he was! It was not difficult to make good real returns at that time and many could not see the potential risk.

Many of you will have read the public letter produced to Gordon Brown by Mervyn King last week explaining why inflation was over 1% above the governments target of 2% pa. This is a requirement of the system and details why inflation has increased and explains this was partly caused by higher fuel prices, milk and furniture/furnishings. So if you are reading this from the comfort of your new sofa, then you only have yourself to blame!

Gordon Brown responded with high faith in the Bank of England and I am sure that they will do everything that they can to get this situation under control. So does that mean a 0.5% base rate increase in May rather than 0.25%. Watch this space.

Joking aside, the effects of this issue are far reaching and are likely to affect all of us in some format or other. The level annuities that have been purchased in recent years will lose value at a greater rate, mortgage and borrowing costs are likely to increase further than expected and wage increases are likely to increase.

No-one is expecting the bad old days of the 70s, but the effects may still be painful. The media are focussing significant resources to this subject at the moment with some good comment coming through from our colleagues.

I am sure that, both personally and as business people, we are looking at our own budgets to ensure progress is watertight in 2007. It would only be prudent to do this. But what of our clients and enquirers?

Now is the time that we, as financial planners, can offer great value in helping our clients through what may prove to be a tricky year. Many are concerned about this growing issue and its effects, and our guidance and advice can put our clients on the straight and narrow. The true value of an IFA will be seen this year.

Keith is Churchouse is director of Churchouse Financial Planning.

The views expressed are those of the author and not those of the company he represents.