Living with inflation for years

According to the August Inflation Report produced by the Bank of England,there is a 40% chance that inflation (as measured by the Consumer Price Index) will still be above its 2% target during the third quarter of 2014. Even the most optimistic forecasts show CPI inflation above 2% until the end of this year; the most pessimistic scenario shows it hitting more than 6% before the end of 2011, before falling back to more than 4% for years to come. Incomes are unlikely to rise much over the same period, so many families face a squeeze on their budgets, including regarding how much they can afford to save. Nevertheless, the savings ratio (i.e. the proportion of household income that is saved rather than spent) tends to rise during a recession, because families become more concerned about their long-term future, compared with when economic times are good.