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Value of money falls by two-thirds in three decades

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Consumers today need £3m to enjoy the equivalent lifestyle of a person with £1m in 1982, as retail prices rose threefold in 30 years.

According to a report by Lloyds TSB, the purchasing power of money has eroded at an average rate of 3.7% a year over the past 30 years meaning someone would need £299 to buy the same things today that would have cost £100 in the early eighties.

Nitesh Patel, economist at Lloyds TSB Private Banking, said: “The value of money has fallen substantially over the past 30 years as retail prices and the cost of many everyday items has soared.

“Looking to the future, even if inflation is kept firmly under control and rises only in line with the Government’s target, it is likely that the value of money will continue to reduce significantly and decline by more than half its value by 2042.”

Based on calculations in the report, the prices of essential household items have risen substantially since 1982 with, for example, the average price for a loaf of bread increasing from 37p in 1982 to £1.24 in 2012; a more than three-fold rise.

The average price for a detached property has risen approximately six-fold over the same period from £45,211 to £273,700, while a troy ounce of gold has risen by 439% from £203 in 1982 to £1,096 today.

Similarly, fuel costs have also risen substantially with diesel prices now 294% higher than in 1982, while the price of coffee has risen by 176% from an average price of 97p to £2.68.

By decade, retail prices rose most rapidly between 1982 and 1992, increasing at an average annual rate of 5.5%. In contrast, the lowest inflation occurred between 1992 and 2002, with retail prices increasing at an average annual rate of 2.4% during the decade.

Between 2002 and 2012, retail prices rose at an average of 3.3% a year.
Lloyds TSB says if retail prices were to rise by 2.8% annually, the value of money would decline by a further 56% over the next 30 years.

In this event, someone would need £229 in 2042 to have the same spending power as an individual with £100 today – or nearly £2.3m  to enjoy the equivalent lifestyle of a person with £1m today.