Can’t ignore what Putin’s war in Ukraine will mean for your finances

But amazingly despite focusing on it, it can also have a big impact on our cost of living, and our savings, pensions and investments, from war. This effect means rampant inflation for many years to come.

All told, higher costs for home energy, gasoline and diesel, food, and secondary impacts on other goods and services, could cost the average household more than 2,000 euros for a year.

Save

Inflation was a problem before the war, but it has gotten much worse since then.

Rising prices don’t just make what we buy more expensive – inflation erodes the value of any savings people put in banks and other institutions.

If someone had €10,000 in deposit with zero interest and inflation was at 5pc for the year, their savings would be worth only €9,500 in terms of what they could buy.

If inflation continued at the same rate for a second year, the spending value of their savings would drop to 9,025 euros, according to Barry Cahill, of Taxback.com.

To deal with this situation, he recommends that people with substantial savings that don’t pay interest, may consider using some of their savings to pay off outstanding debt, whether it overdrafts, personal loans, auto finance, or even some of their mortgages.

Mr Cahill said: “An alternative is to invest some or all in a pension, which can attract significant tax relief, depending on the type of pension arrangement you apply to.

Pensions and investments

The stock market is volatile, which reflects the impact of the war in Ukraine.

But pension savers shouldn’t worry too much when they’re invested in an investment strategy that’s right for their age, says Ray McKenna, partner at pension broker Lockton Ireland.

Most retirement plans offer a “lifestyle” investment option that automatically reduces risk for pension savers as they approach retirement.

This protects members nearing retirement, said Mr. McKenna, as they will automatically be moved out of the higher-risk funds and will see a much less decrease in fund value.

“Personal savings are a long-term business that can have peaks and troughs, and we generally advise against making hasty decisions.”

He said the benefit of regular pension savings is that people are investing in the market regularly. This means they are buying more units in their retirement fund when the price falls.

Retirement funds typically invest in a variety of assets with stock market weighting only.

Mr McKenna says this means that when people read that the stock market is down, say 10pc, it doesn’t mean their pension fund is falling as well.

Mortgage

Before the invasion of Ukraine, markets were expecting up to two rate hikes from the European Central Bank (ECB) this year. For now, a small rate hike is a possibility near the end of the year, but it may not happen at all.

A rate hike by the ECB will push up the cost of variable and trackable mortgages, while also making the new fixed rate more expensive.

This is good news for homeowners, says Joey Sheahan, chief credit officer at MyMortgages.ie. “With energy prices expected to spike and affect other commodities, the de facto mortgage rate is expected to remain steady which will help homeowners buy track or commercial products. products with variable exchange rates are released.”

However, he said homeowners should consider whether they can offset some of the other cost increases by switching mortgages for a better deal.

Food

According to Michael Wallace, professor of agriculture and food economics at UCD, food prices had risen before the crisis in Ukraine.

The invasion means that “pressure is building up that is causing supermarket prices to increase quite severely,” he said.

Bread and breakfast cereals will be the first to raise prices. Russia and Ukraine are huge grain and feed producers. Meat and dairy products will also be more expensive. The farm’s fertilizer costs have more than doubled this year.

He doesn’t like predicting price increases, but doesn’t rule out double-digit inflation like the 1970s.

There have been signs that the standard slicing pan could raise the price by 30c. If the average grocery store increased by just €15 a week, it would add almost €800 to the annual cost for a typical household.

Energy

There are real concerns about the rising cost of electricity, gas and heating oil in homes.

It comes after more than 35 separate increases in home energy prices last year.

Daragh Cassidy, from price comparison website Bonkers.ie, said the record cost of wholesale gas could add 10pc to home energy bills. In 2020, the average electricity bill was around €1,100, but today it’s around €1,500.

Two years ago the average annual gas bill was around €800, but now it’s around €1,200.

“Both of these bills could easily increase by 10pc or more in the coming weeks, which would add €270 a year or more to a household’s energy costs,” said Mr. But we could see higher gains. ”

Consumers say they pay a lot more for heating oil in their homes in the past few days, with suppliers limiting households to just 500 liters even though they have ordered more.

Gasoline and diesel oil

Pump prices seem to keep going up. Figures from AA Ireland show that rising fuel prices mean the average petrol car driver now spends around 1,000 euros more a year on fuel than in 2020.

The Government’s decision to temporarily reduce the excise tax will save motorists an average of €240 per year.

So there will be a net cost of €760 in one year due to the higher cost of motor fuel.