In the UK, more than 112,000 people hold onshore liquid assets of more than US$50,000 and, according to research carried out by Datamonitor, this number is likely to rise by 13% by 2011. This rise in the number of High Net Worth Individuals also holds true in countries such as the USA, China, India, Russia and Brazil.
However, whilst more and more people are becoming wealthy, the prices that they are paying for the goods and services that they buy also appear to be increasing rapidly.
In the UK, the rate of inflation is usually calculated using one of two inflation indices, the Consumer Prices Index (CPI) or the Retail Prices Index (RPI). These indexes are used for slightly different purposes and calculated in slightly different ways, but essentially, they employ the same method: tracking the prices on certain goods and services over a set period of time.
However, although these indices help to produce average inflation figures, there are certain things that they don't take into account. Firstly, individuals will have individual inflation rates, as we don't all buy the same goods and services, and secondly, the spending habits of High Net Worth Individuals are not taken into account in the calculations.
High Net Worth Individuals are likely to have substantially different spending patterns from the average UK householder, and are likely to spend more on luxury products such as jewellery, travel, club memberships, meals at restaurants and private education for their children.
According to a recent study by private banking firm Coutts & Co, the rate of inflation on these types of goods and services is far higher than the average rate of inflation shown by using the CPI. Their research has revealed that during the period between November 2006 and November 2007, inflation for luxury goods and services rose to 9.5%, 4.5 times the 2.1% inflation rate indicated by the CPI.
Of course, not all goods and services that are purchased by High Net Worth Individuals fall into the "luxury" category, but if 50% of an individual's outgoings are subject to the rate of inflation shown by the CPI and the other 50% are subject to the rate of inflation as indicated by the Coutts Wealth Inflation Index High Net Worth Individuals will still be affected by inflation at a rate of 5.8%, more than twice the rate of the CPI. Therefore, there does appear to be a price to pay for wealth.
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