The Inflation Cure You Don't Want to Hear

How inflation works - How to protect yourself - How to Invest
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DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice - James is not responsible for investment actions taken by viewers. Please seek out a regulated advisor if you require assistance (while James is a financial adviser, he does not provide advice through this KZbin Channel, which is not affiliated with his employer).
0:00 Intro
0:35 How Inflation Works
4:48 The Cure
8:22 How to Protect Yourself
8:55 Cash
9:23 Mortgages
10:31 Investments
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Copyright © James Shackell 2022. All rights reserved.
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[@JamesShack]

Where is inflation affecting you the most?

[@greatdara]

Housing prices

[@Pbchelt]

Energy costs and food.

[@Marenqo]

Rent

[@Pegaroo_]

here's the inflation cure companies don't want to hear, lower profits. this inflation is NOT driven by wage increases

[@Callmesi]

Building supplies. Awful time to plan an extension!!

[@dave0n2wheels69]

James - one thing I struggle with. Why do we repeatedly hear that we have to forego wage increases to combat inflation, while the inflationary industries make obscenely high profits and their executives get wage increases and bonuses? Yet feeding some of those profits back into mediating prices, via taxation or just corporate restraint, doesn't seem to get much headway?

[@jauld360]

It's not my subject, but a small increase in salary for large number of people could greatly outweigh a large increase for a small number of people. I don't have the data to work out how this affects UK on average, but suppose there are 10 bosses earning £100,000 per year and 300 workers on the UK average salary of about £38,000. The bosses award themselves a 10% pay rise and a 3% pay rise for the workers. The total extra paid to the bosses will be £100,000 and the workers get a total of £342,000 extra. In this example, the 3% rise for the workers adds a lot of money into the pockets of workers as a group. We also need to consider the velocity of money. The bosses might not need their 10% pay rise and much of it might go into savings or pensions, without leading to much additional spending. Whereas the workers might need to spend all of their extra salary, which becomes inflationary.

[@MartynThomas1]

@@jauld360 Your example is spot on but your conclusion doesn't stand up to scrutiny. Imagine if that company was facing a strike and so decided to cut manager salary by 10% in order to fund 1% of the pay rise for the 300 workers. The workers use the extra cash to buy food, electricity and rent. They might spend a little more in local shops. This all boosts the economy and has very little effect on inflation (shops and electricity companies aren't raising prices because customers have been buying more.) What will the managers do, now that they are £10k down ? Consider sending their kid to the state comp instead of going private ? Decide to replace their Porsche after 3 years instead of 2 as they planned ? Cut their all inclusive Mark Warner holiday from 2 to 1 week ? Reduce their ISA contributions ? Have fewer meals out ? None of these help the local economy but several of them will stop driving inflation.

[@MartynThomas1]

@@jauld360 Your example also has managers earning ~ 2.5x the workers. For FTSE350 companies the CEO is on an average of 44x (this dropped from 53x in 2019 - note it's 67x down from 73x for FTSE100 CEOs). Also realise that other C Level Directors will typically be on 25-75% of the CEO. So if your company was a FTSE350 then the CEO would be on ~ £1.7M with many of C Levels on ~£1M

[@dave0n2wheels69]

@@jauld360 I don't dispute your point John, but it's the exec and directors I'm referring to here. Example from 3 months ago "North Sea oil and gas bosses get combined £25m pay rise Pay package included a £4.6m ‘golden hello’ for CEO of the sector’s largest operator, Harbour Energy’s Linda Cook". In addition, taking 50% of just one energy company's profits for one qtr this year would yield £5bn. I understand the dynamics of supply and demand, but struggle with government's inability or unwillingness to exercise some control. What really grates is them saying that the victims of this greed, the consumers, have to pay the cost hikes but also have to forego pay increases as well! They are taking us for fools.

[@JamesShack]

Hmmm - it's above my station to answer this! But i think other businesses would be put off doing business in the UK if the Govt was going to intervene like that. Instead I think the UK wants to put itself forward as a place that is open for business. They want to attract business investment from across the world to boost our economy and create jobs. That's why I think they shelved the windfall tax.

[@JamesShack]

Correction: @10:55 X Axis = Volatility Y Axis = Real Return

[@sparkinitesparkinite9617]

Thanks James. This is one of the best lectures on investment I have watched on KZbin so far. Very instructive and direct to the point. Wonderful job indeed. 🎉

[@stonie3216]

Great video. Very clear explanation of our current situation. I think a recession is necessary tbh. If we don’t we may end up like America in the 70’s/ early 80’s with runaway inflation which then ended in a recession anyways. It’s the lesser of two evils imo. You can’t kick the can down the road by cutting rates or printing more money. It needs to be dealt with now

[@JamesShack]

I'm hoping inflation starts to show signs of abating before rates get too high. Oil, shipping costs, wheat are all starting to fall. Let's hope it's not too little too late!

[@dancooper5476]

Another very clear and well explained video. Top advice to stay useful, though often the most useful jobs in society are the most undervalued. Could you please make a video on the options for those of us with career average pensions, like teachers? For example, is a Lifetime ISA worth using rather than buying additional pension where there is no employer contribution?

[@jamesbowater1328]

Great video as always. With the uncertainty around whether rates will continue to rise or whether central banks will have to reverse course, how would you decide how long to fix when remortgaging?

[@JamesShack]

I think you need to make a call based on your own circumstances. If for example you're looking at a 5+ year fixed at 3%+ and it still works with your cashflow then it may be worth sticking with it rather than take the risk with a shorter term. It's foolish to look back and regret it if it still works for you financially. And worked for you at the time you took it out. But if it does not sit well you, and you fancy rolling the die a shorter term may save you some £.. or cost you!

[@bluceree7312]

Interesting analysis. Now I understand where the economists came up the the _theory_ that increasing wages is a bad solution for inflation. While I see their premise, it is not entirely fool proof. For example while the "sticky" wages are not going up, the executive bonuses and share options and benefits are going up drastically. How does that affect inflation? Also solving a temporary problem (inflation) with a bigger more permanent one (inequality) does not sound like a good idea. Third, the solution in my opinion is to use all this profit companies are making but not paying forward to their employees through wage increase but instead propping up their share prices, and giving their top executives and shareholders the spoils, instead of that, the solution is investment in social programs that benefit all like education and health which the government has not done sine the Tories took over 12 years ago.

[@wesleylang172]

Appreciate the video. But it really is galling thinking that the solution for relatively well off people is to simply raise rents to offset their inflationary losses. This would would be directly affecting those with less financial security which feels gross.

[@michaelhutchinson2854]

That’s life…..

[@liamluther]

@@michaelhutchinson2854 tory

[@michaelhutchinson2854]

@@liamluther cry….

[@MartynThomas1]

It's just a power struggle. Tenants have very little power over landlords but they do sometimes have some power over their employers ... Hence all the strikes at the moment (Rail, Tube, Bus, DHL and dock workers as well as barristers !!). There are also lots of strike ballots in progress ( Teachers, Nurses, Doctors, Fire Brigade, etc). It's nuts but as Mr Hutchinson has pointed out, "that's life" and if you don't like it "cry..."

[@michaelhutchinson2854]

@@MartynThomas1 see Mr Thomas gets it….

[@davidconcannon4236]

Great video, and well delivered as always. I would suggest that you're speaking to the middle-upper class, holding a ton of liquidity to invest. However, my gf could never afford to invest in anything while she is paying her mortgage. A notional positive return for her while inflation is high and rates are low (five year fixed at around 2%) is meaningless, as she can't invest and is seeing prices rise in real terms on every-day items and utility bills. I feel this wasn't covered in your video so would be good to get some additional insight in future uploads.

[@gaurasrspublishing]

Yes, the video speaks to the relatively well-heeled, many millions of other people will quite literally be concerned with heating/eating/rent/mortgage - it's a shit storm waiting to happen for many.

[@Krissy_K888]

This was exactly everything I was looking for and you explained it perfectly in one video. Thank you!

[@adriankingdon3055]

Great video. I am self employed and a lot of my customers have questioned my decision not to raise my prices across the board. I explain to them that I don’t wish to feed the inflationary fire, some understand, some don’t. I know that my stoicism on its own will not have any effect whatsoever on the big picture and actually I’m making things temporarily harder for myself but even so I feel that for the time being it is the correct decision and it is also important to be flexible when considering new investment opportunities.

[@MartynThomas1]

The "Don't Ask For A Payrise" suggestion is probably fine for many followers of this group. For many of us, if we suffer an inflationary based pay cut then we will just have to consider investing less in our ISAs. But for many people who are now going on strike (rail, bus, tube, post and dock workers to name a few), an inflationary based pay rise will not cause price rises, it will merely prevent many of them from having to fall back on food banks, have their utilities cut off or face eviction from their homes. Many would like to see the Governor of the Bank of England (along with all middle, senior and especially C level managers) lead from the front and take inflationary based pay cuts this year. I would also like to see the media (including channels like this) explain that if inflation is caused by the abundance of cash (i.e. the demand) then raising interest rates and real term wage cuts isn't the only way that this excess demand can be cut. Cutting dividends is a way that a company can create cash to pay for sustaining wages. Shareholders demand that their payout goes up every year and nobody ever challenges that. Increasing taxes is a way that government can reduce the amount of cash in an economy. This last measure would even be popular with the majority of people if you increase taxes that the majority of people never pay (IHT, CGT, Corp Tax, upper rate Income tax), rather than increasing the regressive taxes that do affect the majority of people (VAT, NI and basic rate Income tax).

[@lukeh3020]

I agree with most of that, apart from the bit about rail and tube workers. They’re already substantially overpaid based on union terrorism. Why should train drivers earn over 2x what a bus driver earns when there’s no difference in the skill required?

[@slayerrocks2]

@@lukeh3020 the RMT represent very few drivers, the decent wages you are referring to. They represent the ancillary staff. Maintenance engineers, cleaners, ticketing staff etc. Most if these are on or below industry standard wages. Even train drivers (ASLEF) should not be expected to take pay cuts, while executives and shareholders get huge payouts. Finally, it isn't just about money. They are against changes to working patterns, premium rates, use of agency workers, responsibilities, and weakening of safety standards. Why focus on driver pay? Why not demand executive pay be throttled? Dividends lowered? These increased despite the companies taking government subsidies. The taxpayer literally paid for bonuses, exec rises and shareholder dividends.

[@ethansaltmere]

Do you even know why companies like to pay out bigger dividends? Or the impact of cutting those dividends? Do you even know why in 2008 there was such a big recession? It’s a little difficult to come on here and read ideas from people who don’t understand the basics. Your ideas are all very empathetic and ideal but there’s reality at work here - economic reality.

[@lukeh3020]

Because the drivers are the most egregiously overpaid. Ancillary staff are too. I firmly believe that unionisation is the reason our trains suck compared to the rest of Europe. Privatisation hasn’t worked and the nationalised system didn’t work either thanks to the unions holding the service to ransom.

[@slayerrocks2]

@@lukeh3020 where do you get your information from? How much are ancillary staff paid? I know. Do you? What is the salary of a rolling stock maintenance engineer? What about a cleaner or ticket counter worker? When was the last industrial action by the RMT, and were you alive when it happened?

[@FlyingFun.]

So what do we invest in now ? I have a lump sum that is my pension and I'm retired , I dont fancy property anymore after my previous bad experience, I'm dca into lifestrategy 100 but sitting on way too much cash with no clue where ti put it. Bite the bullet and get a btl but with no mortgage is tempting IF I can find a property and a good tenant both of which are difficult.

[@matthew7299]

Hi James, great video. I would love to be able to chat to someone with your economics knowledge in person. I’d want to discuss how you would go about alleviating the “suckiness” of inflation for “normal” people in society? By “normal” I mean people who rely ~entirely on their wages to live, and whose lives are so busy with things like being a good carer, or parent, or worker, to do much else with the couple of thousand £s they have (/ don’t have) in savings? I understand your logic that, to stop runaway inflation we must resist the temptation to raise wages, but I can’t help thinking that it’s not that simple and that measures could be implemented elsewhere to apply the brakes, and so to only/mainly focus on pausing wages, is the cruelest balance of measures to implement. For example, when you described how there is natural correction for inflation, it just showed how shafted people who aren’t property owners, business owners or investors are… It got me thinking about ways it might be possible. Could we use a cleverer index to inform wage rises? One which takes account of rate of growth in inequality, as well as taking account of how much more low earners spend on essentials with price rises? Basically if overall wages stayed fairly similar but the lowest wages were increased, would that still cause runaway inflation according to you? Or might it work? Anyway, great video as always 👍👍👍

[@JamesShack]

These are very great questions which are tough to answer - I'm sure many economists have grappled with them. Hopefully someone will come up with a solution and have the political power to implement it!

[@KalpPatel]

I generally love your content and am very thankful for it as it helped my personal finance journey. I think we have had no real wage growth with respect to infaltionin the UK over the last couple decades so we are all already underpaid compared to similar jobs in developed economies. In particular the public sector jobs, so I think a wage growth is necessary and this is the time to do it as people can band together for once as we all are hurting with inflation at 10% and rising energy costs. Yeah sure, they may come down but this is about pay restoration for most jobs that have not seen inflation adjusted growth.

[@owensmith7530]

Most public sector jobs have gold plated inflation proof unaffordable pensions. Those need to be got rid of but that is very hard to do so successive governments kick the can down the road on that. Instead such jobs get paid less and less in real terms to pay for and restrict the value of those unaffordable pensions. Meanwhile those of us living in the real world have to put realistic amounts of money into our money purchase pension schemes to fund our own retirements.

[@lyndaaustin6190]

There has been austerity economics for more than 10years into this current crisis, which now means massive real paycuts. The promise of pensions in 20 years doesn’t pay the gas bill/mortgage. This is a real crisis, and divisive public v private is very unhelpful and unhealthy way to view the world. If public sector workers can’t spend then the private sector will not grow.

[@ChrisW444]

@@owensmith7530 That is so true, I used to be a civil servant and the pension scheme was amazing, since I joined the real world I have had to stump up a lot of cash. Public secetor workers don't know how well treated they are and it is good to see that they don't have increased wages like they wish for. It's common sense. Unfortunately greed means some people forget about the benefits and good times!

[@UbiquitousBooks]

Over that same couple of decades you are talking about, UK productivity growth has also lagged significantly behind its peers like France, Germany, and the US. British workers simply produce less than people in those other countries. Ultimately, British people have to be paid out of the fruits of what they produce. If they are less productive than people in other economies they can't expect the same kind of real pay growth.

[@mattpinfield2578]

@@UbiquitousBooks one of the reasons for poor UK productivity is companies prioritising dividend payments rather than investing in tech

[@liammullan2197]

I've got a bad feeling about this one. There is a lot of complacency out there with people sure inflation will pass. But inflation looks embedded already to me. The daily news about strikes and complaints about pay is a clear demonstration of that IMO.

[@cgo225]

People need to suspend buying thst new car, moving house, taking that posh holiday - cutting their standard of living until inflation comes down. But from the way so many people refused to follow lockdown rules, or cut back on water consumption then I'm not optimistic. Many people don't understand inflation yet they know who won Love Island for the last three years, so their wilful ignorance and selfishness will soon be richly rewarded.......

[@Nashy119]

Since energy supplies have been cut people need to reduce their energy use (or do it indirectly). People seem to have the idea that they'll all be able to outbid each other if they all just throw enough money at it, which seem kind of crazy to me.

[@Miks2092]

@@cgo225 I understand inflation, its killed of most of my discretionary spending. Well all really. But I have accumulated debt, which I have to service. Also if I miss overtime or can't find extra work. I use my credit card to see me through. Luckily I saw this coming and fixed mortgage, but at a cost which went on the credit card. I have also sold most of my small amount of investments. Which I sometimes end up using to cover bills. I'm a firefighter and have endured so many pay freezes I've lost count, most if not all of my pay rises have been under inflation for the last decade or more. I know this was initially because of the 2008 crash. Those bankers have never suffered, pay is up by 20% on average in the city this year. Nurses got a clap during Covid, that was it, no investment no pay rises ect... All whilst billions in dodgy loans and PPE is written off willy nilly. Workers like myself do not have any wiggle room to not ask for pay to rise with inflation. That's the problem, a country should never seek to run an economy so it leaves its citizens so precariously on the edge. I also feel for all the small businesses seeing energy costs rise like this, they will not have the buffer of profits, to dig into like the multinationals do. They will go under from energy costs alone never mind wages. Who knows maybe all that unemployment will drop inflation. Or will it just be a massive depression. Will a wave of foreign direct investment flood in to our economy, even though it will look like a total car crash. Maybe I'm melodramatic but I do feel like the economy is being sacrificed on the altar of Tory economic ideology.

[@jrc5515]

Great video James....Really insightful. Thanks for the time you take doing these. They're golddust 👏

[@JamesShack]

My pleasure!

[@kevinb5016]

I really like your videos James. Your investment analyses have pointed me in the direction of diversified index funds so thanks for that. I think the pay negotiations for 22-23 haven't even started in earnest yet. There is a theme in some of the comments on here and in the views expressed by the barristers today that the awards for this year need to right the wrongs which have been visited on public sector workers since 2008 rather than just addressing the current inflationary situation. I think the dispute which will be the most significant is with NHS workers who still retain a higher than average amount of public sympathy and have already rejected a 5% pay offer. I thought you had wound down your You Tube video production so a pleasant surprise to see this ... even if it is covering a situation none of us want to be in ! Keep them coming James 😊

[@JamesShack]

Hi Kevin, thanks for the comment. Yes you're right, I think the inflation headlines have been the final straw for many groups that have been sidelined for a long time. I will keep the content, but perhaps not cover such divisive topics!

[@bobbydwheelhouse]

Really useful thanks. Sentiment seems to be at an all time low. I’m concerned this could be the reset that’s been talked about for years. What’s your view?

[@JamesShack]

I don't think it will. But who knows? You and I won't be able to predict anyway, it's out of our control. So best to focus on what we can control. Cash flow and investing in things that are Useful to Humans!

[@Clarioner1]

@James Shack - Great video as always. I have more of a general question about pensions and the 25% tax-free lump sum. IF an employer pays a large single lump-sum payment into my personal pension whic is tax-free for me e.g. £50k, and say that takes the value of the pension immediatley from £200k to £250k - is the 25% tax free lump sum now calculated on the £250k if I crystalised that the nextg day?... or does it have to be there for one tax-year (or more) to qualify as part of the 25%? Q: What if you have 2 pensions with different providers (one SIPP and one with a "tradtional" pension-provider in one of their manged funds) - is the 25% calculated on each one i.e. the TOTAL of the two funds, or only on ONE of them?... as in essence it would be two separate payments. Q: Re: Inflation - Do you agree that for anyone aged 55+, given the stock-market conditions and inflation at circa 10% (which could easily continue for the next 2-3 years)... the chances of them "wisely" investing in a SIPP to outperform inflation at this stage in life, the fund value could actually decline in the next 2-3 years, NOT increase and thus moving at least some of the money to safer investments (or investing in your own home) may be wise (via crystalisation)? Thanks again.

[@JamesShack]

1) You can take tax free cash right away 2) If you had two £100k pensions, you can't take £50k TFC from one and none from the other. You can take lumps of TFC whenever you want, you don't have to take it all at once. If you had a £100k pension. You could draw 10 lots of £2,500. Or just take £25k. But when you draw £2.5k TFC you have to designate £7.5k (the other 75%) into a 'drawdown' account, this is also know as crystallisation . It remains invested in exactly the same way but it's marked as "crystallised" so the pension knows that you've already had TFC from that part of the pension. 3) I can't say what we would be correct for anyone specifically. I can only talk in generalities. If a person was going to retiring next year, and they know they'll need £25k per year from that point. They should have the first few years of income in cash or other more predictable assets. This is a common strategy whether you're there is high inflation or not. I would not invest that money in my own home unless i know I can get it out easily without a large risk of getting back less than what i put in. As for assets that they don't need for 5+ years? The chances of stocks producing positive real returns over that time frame are much higher and can be considered. You don't have to crystalise the pension, you could just invest a portion of it in lower-risk assets within the pension. This also means that if you were to die, it will likely fall outside your estate (if IHT is an issue for you).

[@Clarioner1]

@@JamesShack Thanks so much for responding.

[@obbardc]

I think you got the X and Y axis of the Investments graph mixed up :-). Easy mistake to make though! Thanks for a great video & top tips as usual.

[@cherrieaulait]

Beautifully explained, thank you 😊

[@minimad8793]

I will definitely benefit from Maturing bonds as I had a rate of 1.21% and now even the 1 year fix is 3.05% . I realise it doesn't touch the current inflation rate but its a step up from what I had :) what do you think of keeping an emergency fund in Premium bonds?

[@aidanleather]

Super interesting -- thanks James! This sounds silly... but I would love to know where you got your shirt?!

[@JamesShack]

Haha urban outfitters used to do a range called “Shore Leave”. Unfortunately I don’t think they do them anymore.

[@andyrobertshaw9120]

You probably recorded this some days before releasing. On the same day as your video was released, Citi Bank announced an inflation forecast of 18% early next year, and estimated the Bank of England would have to increase their base rate to 7% to combat this. What do you think of these predictions?

[@jacek_dzieciolowski]

Love the video. How do you suggest we distribute our portfolio across different assets during the time of high inflation?

[@cgo225]

Wasn't that long ago many online investment gurus were saying bonds are dead, useless, pointless - now, everyone's dumping stocks and chasing bonds - just like we did back in the 1970s..... Not financial advice, just a thought.

[@i.hristov]

Hi James, as always useful information and explanation will help us navigate through that troubled times. You always suggest investing in a diversified portfolio with productive assets. Can you give us, please more clarification on what that productive asset might be - stocks, bonds, REITs etc. or a combination of all? Just a more specific suggestion, please. Thank you in advance for your cooperation.

[@JamesShack]

The take away I wanted people to have from this was - just keep doing what your doing! A globally diversified portfolio of stocks/bonds depending on risk appetite. Throw in some property if that’s your bag. I would lot stress too much exact allocations. But more diversification the better.

[@danmoffa713]

Great video James, only just stumbled across your channel you talk a lot of sense in your videos with great advice keep up the good work 👍

[@JamesShack]

Thank you I will!

[@littlechanges13]

If demand needs to reduce there are a couple ways this could happen, evenly across society, biased towards the poor or biased toward the wealthy. Current policy and what you’re suggesting re wages means the poor taking the brunt of reducing their consumption. I think we need less Bentley’s and super yachts and more cash going into renewable power generation and food production. I think assuming we can’t influence supply in the medium term is incorrect.

[@JamesShack]

I personally think that supply will come back on line quickly. And rates will end up being reversed. In the short term, I've heard of some businesses giving employees below a certain wage level a cost of living allowance (bonus) to help short term cashflow without putting up salaries, and potentially fuelling inflation.

[@fredatlas4396]

@@JamesShack lucky them, I think they are in the vast minority of employees. Not giving employees a big enough pay rise, or none at all, will not stop the profiteering of the energy, and fuel companies, or any other companies. Also some self employed people like construction workers are waking up their prices and profiteering as well . The cost to have an extension built on your house or other building work has skyrocketed in just 1 year

[@littlechanges13]

@@JamesShack I just have a healthy skepticism as those telling workers not to ask for more are those who won’t struggle this winter. Also there appears to be little empirical evidence that a pass through model of wages leading inflation is accurate. The cries of inflation were loud when Labour introduced the minimum wage or when the Lib Dems pushed the conservatives for a big increase in minimum wages and yet again the inflation didn’t appear…

[@robmaxwell9054]

Andrew Bailey: Poor people stop asking for pay rises. *CEOs get 39% payrise* Andrew Bailey: Look over there a squirrel!

[@jackdavis8786]

@@JamesShack correct, my wife works for Lloyds and they did that, although initially looks good it has avoided giving them a pay rise

[@johnmccolgan1007]

Was mulling over paying an early exit fee on my mortgage, but think I'll hold off for rates to drop in the Spring. Great content as always 👏

[@cgo225]

Which Spring, next Spring, 2023? Good luck with that my friend.

[@johnmccolgan1007]

@@cgo225 looking at the utility rates, I agree. Can't see them dropping soon and that's causing most of the inflation.

[@pw3591]

Great videos, but a couple of points. When you speak about inflation you cannot fail to mention what the FED and the BOE have been doing for the last decade or more which is basically printing money at a crazy rate. Yes recent supply and demand issues have affected price levels in the short term, but remember but remember what Milton Friedman said “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” This has been a decade long experiment and they thought they'd get away with it, but eventually it reveals itself as inflation. Also I would argue that higher prices and higher wage claims are symptoms of inflation rather than the cause. Either way it's a cancer in the economy, a deadly downward spiral, and we are in for some difficult times ahead, and I'm not sure our politicians or central banks are prepared to take the hard decisions required to get us out of this.

[@JamesShack]

This is an interesting take on inflation - www.economist.com/finance-and-economics/2022/04/23/does-high-inflation-matter

[@cgo225]

The central banks and govts don't have any choice anymore, because once one country raises its interest rates, the others will be forced to follow or watch capital flow from their economy to the one offering higher rates..... Yet another death cycle which is down to inflation. Be prepared to see,at some point, your govt. raise its rates in response to another country and not because of anything happening in your own economy.... Now that's when things turn from bad to really bad.

[@davekincla9818]

Very interesting that. I think though that people wanting a pay rise is as much to do with 10 years of austerity. Besides that though, how do you actually go about buying corporate bonds?

[@connorsdad1841]

Feeling quite smug at the moment due to signing for a 5 year fixed rate mortgage deal at 0.94% in January this year 😁

[@JamesShack]

👏🏻

[@bad2694]

Out of curiosity, which lender was that with and what product was it ? What was your ltv? I had a 58% ltv in December and fixed in. It was a fee saver option and didn’t get near that

[@connorsdad1841]

@@bad2694 seems my reply got deleted because I included a link to a screenshot of my mortgage deal. It was with HSBC and an ltv of 40%, standard 5 year fixed with £999 booking fee.

[@owensmith7530]

@@connorsdad1841 KZbin doesn't like links in comments.

[@bad2694]

@@connorsdad1841 that’s interesting as i am with HSBC. Are you a premier or jade customer ? As I thought 60% ltv allows the lowest interest rate ?

[@davey2363]

A complex subject explained with erudite simplicity. Excellent.

[@davehardington]

That all makes sense and calms the verses a little. Great video as always 😁

[@tonyneville2]

Very informative and interesting. Thank-you

[@JamesShack]

Glad it was helpful!

[@sgist7824]

Wow very interesting video, really thought provoking. When I've lived through 2000, and then 2008, things didn't affect me as much, I had a job and no investments. 14 years living through not only a crash but inflation like this is eye opening. Why do we have such inflation now compared to say 2008/09?

[@owensmith7530]

We have a lot more inflation now than 2008 because 1) we printed a load more money to pay for covid than we did for the financial crisis and 2) this has coincided with the war on Ukraine and China having an utterly stupid zero covid policy. As James said, we've been incredibly unlucky. Either that or Putin saw his opportunity to destroy the world economy and took it.

[@sgist7824]

@@owensmith7530 Thank you yes that makes sense, two big issues all in the same down period.

[@addypope2706]

nice video, as always. But is the additional issue here that the energy costs have gone up forcing prices up and forcing personal energy costs up. Your inflation V prices V demand seems to assume that demand is the thing driving prices. But here we have external costs making everything more expensive. Demand will fall but will the prices drop if the underlying costs of producing the "goods" continues to rise? Tackling the energy costs while not increasing wage would bring you back to your model? I am not an economist though so what do i know. But interested on your thoughts.

[@JamesShack]

The inflation is caused by supply shocks, but now many businesses are rising prices just because they can - i.e demand is not reducing despite price rises. So inflation is starting to become more broad based. If wages rise, we can afford higher prices, and the spiral begins. I agree that we have to buy necessity items like energy, we have no choice, so demand cant really fall here. But that's where govt's are stepping in, to shield people, as (hopefully) it's a short term problem. Whilst large scale wage rises would fuel longer term inflation. However, that is just the theory that central bankers hold...

[@addypope2706]

@@JamesShack thanks. that is insightful. Shock perhaps suggests a short term impact but the energy costs could remain high for an extended period of time (i am too young to remember how long the 1970s oil crisis). A short term blip and your explanation will hold, but if it drags on..... What i see is an opportunity to move our reliance on fossil fuels towards cleaner options. What's really frustrating is the "shock" you describe may have been exaggerated by a lack of oil and gas storage leaving the UK exposed to short term fluctuations in supply costs. Sorry i have gone off topic. But then it is all economics. Keep making great videos.

[@Christian-eh8iu]

Great videos James👍 cheers!

[@CrabappleKing]

James do you think inflation in the UK will really hit 18.6% early next year?

[@JamesShack]

I certainly hope not! Where did you here that?

[@stevie3452]

@@JamesShack that’s citibanks prediction today. Top sorry in FT, Bloomberg etc!

[@musicloverUK]

If only savers rates would hit that level!

[@BobJJ9999]

Great vid as always. Slightly Freudian at 4:04 ‘we’re in the opposite shituation!'

[@fiskrond9212]

@James... check your audio settings on analogue loudspeakers

[@JamesShack]

Am I only coming out of one ear?

[@fiskrond9212]

@@JamesShack coming through both channels fine, but... somewhere in the mix the gain is set too high.. audio distorting unless YT on-screen volume at say 30%.. should be clean at 100%. There seem to be many newer uploads (from many different creators, noticeable last 18 months) seemingly having 'everything turned up to 11'.. either due to editing done via (I suspect) digital headphones with a multitude of auto-balancing/noise-cancelling software or YT are messing with stuff after creators have uploaded. Older content sounds fine.. my amp and speakers are also working fine. Never made a video.. but been playing electric guitar badly for 35yrs... 😆 This is a recent upload with much better audio track settings... kzbin.info/www/bejne/hqqkfmete62FZpo although.. you will notice they've overcooked the volume on the promotion insert at 6mins...

[@screambluemurder101]

Given you mentioned mortgages James… Our fixed rate ends next April - thoughts on looking to jump to a new 5year+ fixed rate now rather than wait?

[@JamesShack]

That’s a very hard one to call. Have you seen my last video?

[@screambluemurder101]

@@JamesShack I haven’t mate, will delve back 👍🏻

[@BollywoodBonanzaB]

Thank you for this clear explanation. Makes sense now that i hear it... but still, a Very Difficult one... a lot of the people who are striking are in need of a reward for working solidly through the pandemic after taking a pay cut at that time. Yeah, no furlough AND a pay cut while people were dying around them. Unfortunately Directors missed the chance to win them back - something like a £750 Help At Home bonus in the Autumn would have gone far to restore faith and loyalty while avoiding the pay rise situations; but the hypocrisy of paying millions to the board, who can *survive* without it, and leaving frontline workers who are overworked, underfunded, and just exhausted mentally and physically from trying to stay alive. I hate that reducing demand is the only way to begin to correct inflation, completely removing the human element from 😔

[@CarolinePicking]

It’s always strange that the people who get to have a real term cut in wages are those towards the bottom. The very people who would spend the money back into the economy. While somehow the richest, who will often stash it away or spend ever more on luxuries, get large increases. You *cannot* reduce demand for the stuff that are the basics of living. The result is increasing poverty -> poorer health -> increased cost and burden on the economy. And that’s without even considering moral justice. How much of our sickness burden, for eg, is down to people waiting years for treatment? How economically sensible is it to push more people into poverty, which pushes more people into ill health, further reducing productivity and increasing the burden on the economy? Simple supply/demand calculations are far too blunt an instrument to accurately map the effects of inflation on an economy, unless the starting point is of people having enough to live adequately and discretionary spend.

[@Rhodriievans]

Hi James, hope all is well! I was just wondering if you had any recommendations for your favourite UK based finance youtubes that you follow? I am already following meaningful money and I wondered if there were any others you'd recommend? TIA!

[@JamesShack]

PensionCraft, I like Ben Felix too but that’s quite technical

[@supersonicboy75]

Excellent, clear and non-sensational advice. Bravo!

[@JamesShack]

Thank you!

[@lyndaaustin6190]

Really good video James and interesting comment section!. I think there are a few telling comments on the reality being so far away from where the ‘good’ economics might lie. The main issue is the austerity economics that immediately preceded the pandemic. Looking like folly at this point, as a country we limped into the pandemic.

[@JamesShack]

Reading the comments, this is clearly a very divisive topic. Just laying out an economic theory creates a backlash!

[@huxley49620]

I’m curious James, when you were discussing inflation why did you omit any mention of inflation of the money supply by central banks? Thanks!

[@JamesShack]

Partly not enough time but also increases in money supply does not necessarily = inflation. I cover that in this video here: kzbin.info/www/bejne/j4m8iH6Ln62saNU And the acute inflation we’re seeing right now is mainly driven my supply side shocks to energy, food and global supply chains.

[@aurorekwedi]

New subi James your voice is so calming and you bring down finance and investment to every level 🤗

[@JamesShack]

Welcome!

[@jezzamobile]

Excellent - very helpful, thanks 👍

[@JamesShack]

Glad you found it useful

[@DoMythago]

Another superb video. Thanks for this super valuable content.

[@JamesShack]

You’re welcome!

[@stuartforrest]

Thanks for the video. Great.

[@podman1935]

Great video clear and detailed

[@8G00SE8]

If you don't get a pay rise or if rising interest rates cause home prices to stagnate or slightly lower, are you still profiting from a 2% mortgage? Surely the asset you own with debt or your wage would need to match inflation otherwise you are essentially treading water with negative equity whilst everything around you is getting more expensive?

[@JamesShack]

That is correct. But if your house price does not rise with inflation, that is because your house has become relatively less valued than other houses/areas. Which will happen whether there is inflation or not.

[@inuvik491]

Great video James, very interesting and threw up some points I’d not even considered.

[@mattpinfield2578]

What impact would Truss’s likely tax cuts have? Seems to be counterproductive if the boe is trying to cool inflation…

[@presterjohn71]

It's a popular opinion that you have for sure but personally I think extra wages in the hands of those that actually put that money back in the system is better than putting it into the hands of the wealthy who just keep it, don't pay much tax on it or worse still hide it abroad.

[@jimspencer3072]

You mentioned the industry sector correcting itself. Energy is a large part of why we're here, Net Zero is self destruction but is driven by a powerful force, Johnson was all for it. The problem we have is good businesses could be wrecked and never come back this next year because of expensive energy. It'll take at least 4-10 years to tap our resources again, by that time it's too late.

[@chriscray5922]

It was a good video, one thing I struggle with is the fact that in the west we are heading to a cashless society. So what would be the best thing to invest in, a cashless society. There are many wealthy people now selling property and now only rent. Why is this? Also if you look at the the top wealthiest they are heavily investing in gold silver and copper

[@JamieGuitar]

At 10:55 what you say contradicts how the axes are labelled

[@JamesShack]

Crap.

[@JamieGuitar]

@@JamesShack 😂. Insightful video though, thank you.

[@caio5987]

I think the main reason why public workers are striking for better pay is that in their case they haven’t seen any meaningful pay rises for several years now… I think in their case is only fair of them to do so

[@JamesShack]

I think so too. And it's easier for private sector workers to negotiate pay rises because there is a free market for them. For pubic sector workers, with only one possible employer, sometime striking is all you have!

[@MartinHopkinson]

And that has done nothing more than bring them closer to private sector employees, but they’re still better paid than said employees…. Liam Halligan in the last Sunday Telegraph (article titled “don’t believe the public sector sob stories”.)

[@JamesShack]

@@MartinHopkinson public pensions are also superior in most cases.

[@MartinHopkinson]

@@JamesShack I know, James - I have one; index linked with no cap! And, having been a public sector employee for 18 years and private sector for 22, I know how to appreciate the job security and the ‘gold plated’ pension that were the hallmarks of my time in the public sector. That’s why Liam Halligan’s article rang true with me.

[@ribz747]

Also in the 70s going to uni didn't cost 9k, it cost nothing (in the UK)

[@jonharraway2172]

Surely inflating away debt only works if your wage rises are greater than your interest rate? And with high inflation, and wage rises not keeping up, paying your mortgage becomes more of a burden.

[@nomadicsouls3290]

Excellent video, clear and to the point.

[@JamesShack]

Much appreciated!

[@nickp1989]

I'm progressing into a 5 year mortgage at 3.24 percent. I think even if we are in recession I think banks will not be so interested to take rates back down to cost to zero. They need ammunition for the next black swan event. Also we had inflation moving up before the war due to all the money printed in the pandemic. the war just made it a whole lot worst. Inflation takes time to be consistently lower but will it ever be at 2 percent range again? I don't think so sadly. perhaps around 3 to 4 percent. which is perhaps where interest rates will be for a period of time.

[@chay18]

Great work as always mate!

[@Simon-vp3st]

Thanks, very helpful video :)

[@JamesShack]

You're welcome!

[@Simon-vp3st]

@@JamesShack You got the tone spot on :)

[@LEWIS1992]

Thanks for this, it was a really interesting video. Have you considered doing some sort of collaboration with DamienTalksMoney? Both really good channels of similar size.

[@UbiquitousBooks]

Important video that needed to be made. It's understandable, but still frustrating that most people are offended by the idea. Now the billion pound question: if inflation is really coming down over a 1-2 year horizon then to fix the mortgage rate for five years or for two? Oh, for a crystal ball...

[@gavinward3176]

I am not economist so if I am missing the point please let me know. The main causes of inflation in the UK is caused by globally inflated costs of gas and oil, this is having a knock on effect on domestic products and services. This coupled with over a decade of lost wage growth as caused a surge of wage increases which central banks believe has a negative impact as it may cause run away inflation. I get that central banks can only increase or decrease demand by adjusting interest rates and make borrowing more or less expensive. My issue with central bank strategy is that it makes no sense, the issues are global and increasing or decreasing interest rates does nothing to reduce the overall costs of oil and gas. If they are going to be inflated due to a war and supply chain issue then the only way that stops is by seeing an end to the war and correcting supply chain issues. Increasing interest rates at a time when global inflation is making everyone poorer seems like the equivalent of kicking someone whilst they are down, it's not going to help. If the problem was limited to domestic inflation I would understand but it isn't and central banks cannot do anything to prevent this inflation. Surely keeping interest rates down will help prevent families falling into unsustainable debt and potential bankruptcy. In my opinion an adjustment to the windfall tax on energy producers would be the best way of tackling inflation. Base the price on the April 2022 price cap and any excess profits made from that are taxed at 100%, this money is then passed to the residential energy suppliers to pay the increased wholesale costs. Effectively the energy producers will pay their own excess prices. The tax would be adjusted so that it matched the wholesale cost and maintained the April 2022 price cap. This is not something central banks could do but it is within the purview of governments to take this action. In the circumstances other than taking control of the market until it is under control I cannot see another medium term solution. Just a thought and it would be interesting to see where I have got this right/wrong.

[@clivejefferies]

Great video, as always.

[@dar1e]

Here is galaxy brain word of advice: ask for a huge raise, then keep the money in your mattress so as to not feed the inflation. When things are back to normal, invest the money.

[@fredatlas4396]

Not giving people a pay rise, or too low a pay rise, will it stop the profiteering. Energy and fuel companies are just some of the businesses profiteering now in the UK

[@milowmilo]

It’s not a price-wage-spiral, it’s a price-wage-earnings-spiral an it can be preemptively stopped by companies accepting lower earnings. Either by not increasing prices or by increasing wages. Prices stick just as much as wages do. I’ve never seen a bag of Chips getting cheaper, regardless of how bad or good the potato harvest was. I’ve never seen the prices of Milka chocolate drop. Also I disagree that we need to focus on the core inflation. During high inflationary times we need to focus on the everyday item inflation. Simply because the non-everyday items are getting too expensive even for the middle-class and thus are not part of the relevant basket, making the “regular” inflation irrelevant for a majority of people.

[@BobBob-uv9fq]

I’m just ignoring everything,putting my head under the pillow

[@jasonbuksh2958]

Inflation is no longer local, its global - reducing local demand will not reduce prices as much as they previously did. We need to increase productivity and real value so we can outcompete the rest of the world for these items. Counter to normal thinking - making the country poorer will mean we can buy even less, everyone suffers in the UK. Looks at India and other poorer countries - the products just end up going elsewhere.

[@richguest]

Great vid - I fear the worst, there are too many out there in financial dire straights due to living way beyond their means. They survive pay check to pay check fuelled by endless credit and will never accept they are not, and never were ,quite as rich as they liked to think they are. It’s unlikely the demands for higher wages will go away and the damage caused by various industrial actions and possible pandering to demands will only make things worse.

[@bwdrives]

Well this is what I tried to tell people but they also called me tone deaf and claimed that the CEO’s and executives should take a pay cut instead

[@Machinationstudio]

The problem is that the demand for heating in homes over winter will not go down when it becomes unaffordable. A person's consumption of food will only go down so much based on affordability. So when the inflation spike is high enough, the wages has to go up and the runaway inflation risks have to be there.

[@GAK8919]

Not sure if the "shituation" at 4:03 was intended but feels very appropriate. 🤣 Good video James.

[@JamesShack]

Haha - I’ll coin that!

[@markandjanice6234]

Spot on as Always James. In the 70,s inflation was a hard cycle to break because there were large unions with left wing political agendas that demanded obscene wage increases. They had the power of collective bargaining facilitated by a much larger membership than we see today. This type of inflationary pressure isn’t as prevalent today. Rising prices even on essentials such as food, fuel mortgages will reduce demand and this in turn is deflationary. It’s the geo-politics that are less predictable nowadays but Cathy Wood, Michael Burry and others are predicting oncoming deflation especially for consumer goods, which isn’t necessarily a good thing.

[@cgo225]

The inflation rates being reported are only now BEGINNING to work through into our everyday costs of living so the inflationary impacts will keep rising for at least the next 12-18 months until we start noticing any improvements.... But that isn't guaranteed because interest rates will keep rising, and we feel their impact almost immediately, and while all this is working thru, businesses that can't survive will close with increasing unemployment, house prices will fall as people get scared about their jobs and losing their homes, and people default on their mortgages, credit cards and car loans.... Yes, this time won't be as bad as the 1970s, it's going to be a whole lot worse!

[@markandjanice6234]

You may well be right, if so it’s the perfect lead into the “Great Reset’ and “you will own nothing and be happy”

[@matthieud.1131]

A few things I found useful from another pretty long video on inflation (kzbin.info/www/bejne/pGKupqKjqcSqndk, in French, though): - Inflation is only measuring the evolution of the price of a consumption basket of the average household in a given country. So A LOT of things are not taken into account in inflation, and in particular I don't think "university costs" would be. It's also an average over a basket, so some products see their price increase (e.g. energy, right now), while some see their price decrease (e.g. luxury products, right now), so how each household is affected differs widely because their consumption basket is not the same. Someone who has to commute to work from far away by car everyday will be hit harder, for instance. The increase of cost of raw material is also not taken into account directly into the calculation of inflation: it's only taken into account via the increase in price of the end product, but the raw material itself is not in the basket of the end-consumer. - Several phenomenon can create and fuel inflation. Shortage of some products is one, wage/price spiral is another, but countries currently have a different attitude towards such hypotheses: the US and UK think wage/price spiral is currently the main danger and have raised interest rates accordingly. EU on the other hand has mainly attributed the inflation to the war in Ukraine and views it as temporary and unlikely to spiral into a wage/price loop. An evidence of this is France's low inflation (relative to other countries) because of its reliance on nuclear energy instead of Russian gas. - Studies on why companies increase prices (to see if it's because of higher demand, higher wages, or other factors), has shown that the majority have increased their prices "because they can", i.e. because their competitors have increased theirs, because they are predicting that they will, or simply because their customers don't have a choice anyway but to continue buying from them. So it looks like in most industries, inflation isn't currently caused by a wage/price spiral. - However the very fact that the fed has increased its base rate has had the effect of strengthening the dollar against the euro, hence increasing the price of goods imported from outside the EU because these goods are priced in dollars, and creating further inflation in the EU. This is another fuel of inflation: the weakening of a country's currency against the currencies used by countries it imports from. All in all, inflation doesn't seem to have a wage/price spiral root cause right now. A wage/price spiral seems currently to be only a risk that some countries want to avoid, with various degrees of evaluation of this risk and reaction to it.

[@arunmenon6513]

Great video 🙏

[@malone77]

As someone who has recently been on strike , the main thing for me was job security and backing the union. I am aware that I won't get a payrise to match, the issue is that many don't understand how it works and continue to ask for an inflation match raise. Fortunately for myself I have watched videos like this and educated myself on spending, trying to convince others and explain how it works is tough. Great video James.

[@JamesShack]

Thanks for the comment - very interesting!

[@ntolman]

Unions are a scam.

[@cgo225]

The miners went on strike to protect job security - they got quite the reverse.

[@oumuamua1963]

If wages doubled over 10 year and prices doubled over the same period. Would the feds balance sheet essentially half( in dollar value) without them doing anything. So there is no insensitive to pay it down but rather inflate your way out of debt. Like Japan well all be walking around with 1 million dollar notes.

[@JamesShack]

Yes, inflation can be good for govt's as govts have huge debts on very long term fixed interest rates.

[@45graham45]

People want big pay rises because of high energy prices etc, although like you say, most of the energy increase is temporary. I bet they won't take a pay cut when prices fall. Many workers are greedy, just like the executives & CEOs.

[@cmw3737]

I've said it many times. Higher wages are the only inflation central banks care about.

[@brianstevenson9967]

Regulating profits by increasing tax proportionately with level of profit would control inflation with less pain for the consumer. It aims at the cause of inflation which is higher prices, by controlling profit by higher tax it will control inflation by stopping the cause of inflation. The by product is Government has more cash to spend on those experiencing poverty. That is unless your country has a Conservative government which would never even dream of this policy.

[@mikjnn-1070]

How is inflation eroding debt if your income is not keeping pace with inflation?

[@JamesShack]

Primarily because your house will increase in value.

[@scotdoc]

Gold is a good inflation hedge in the long term, but not always in the short term. It’s also useful portfolio insurance. Also we live in a new era of Zimbabwefication. Get your assets outside the fiat system. The old rules no longer apply!

[@cgo225]

People seem to think that the only thing we need to do during periods of high inflation is avoid large pay claims, sit tight, and it'll eventually pass. But they don't seem to understand how high inflation, together with high interest rates demolishes businesses, causing a spiral of ever rising unemployment,while govts cut benefits and most public spending. This leaves the unemployed with no vacancies because the jobs have now disappeared, with intense competition for the most trivial role, it becomes a buyer's market so wages fall leaving workers even poorer..... It happened in the 1970s, and its happening now. If you've got an esoteric degree, forget it, and learn a trade - now.

[@paulevans2246]

Great vid thanks

[@JamesShack]

Glad you enjoyed it

[@davem.4003]

If the solution to contraction of the economy is quantitative easing (increasing the supply of money), then why are interest rates the only lever available to counter inflation? Why can't governments reduce money supply by repaying some of the debt that they created during quantitative easing?

[@remlap1440]

The problem is not wages pushing up inflation, if that was the case, then there would have been no inflation over the past decade, as wages have failed to keep up with inflation. The problem is excessive profits. Company shareholders demand more dividends, which makes companies increase prices to make ever bigger profits. If companies, especially energy ones, were to absorb some of the price rises, they would still make a profit, but help hold back inflation, allow for Joe public to continue to pay for goods and services. If they continue to push up prices in the pursuit of profits, then less people will be able to pay, and this will lead to no or very little profit.

[@lifeonanotherplanet]

Inflation is being caused by an exogenous shock in energy prices, and the reflex action is to raise interest rates to dampen demand as real income collapses - it's like applying leaches to a patient with anaemia - putting the economy in a tailspin. As the surgeon explained: the operation was a complete success; unfortunately the patient died. Yes, it may seem mad'.

[@progtom7585]

Today citi predict inflation will hit 18% in the UK early 2023… Scary times

[@andyaptc2907]

This is the time when workers pay should be more important than dividend payouts.

[@Nick89000]

Won’t having a -4% real interest rate not matter if your wages don’t go up?

[@cgo225]

Your repayments will be reducing the debt by a greater amount than if real interest rate was positive, so in real terms, you're getting better off.

[@Nick89000]

@@cgo225 Sorry, I still don't understand. If I'm paying, e.g. £100 per month interest, how does inflation going up and making real interest rates negative reduce my debt by any more amount if I still pay £100 per month and my wage has not increased?

[@g0801215]

And yet inflation in Denmark isn’t as high as the UK despite the higher wages.