The cost of living crisis and you
How many times have you been to the grocery store and seen a different price for cheddar over the last year? Did you get surprised when you saw that a kilogram of sugar got over £1? And if you love a Mediterranean diet like me, are you struggling to find half a litre of olive oil below £6? Or has your favourite brand of orange juice remained the same price but got smaller? The chocolate definitely has!
The prices of our favourite products have gone up over the last year affecting our daily budget. Economists measure that with something called inflation; think of a basket with all the essential goods that you need, the rate of increase of their prices is what we call inflation. The UK’s basket of goods includes products from Yorkshire puddings to E-bikes and the Office for National Statistics (ONS) is responsible for publishing new estimations of inflation every month. One of the main measures of inflation is the Consumer Prices Index (CPI) and captures the prices of essential goods but excludes housing costs like rent. And its graph has been looking like a roller coaster over the last couple of years!
CPI annual inflation rate reached its peak point in October 2022, with an 11.1% increase in prices within a year. That was the largest increase in prices that we have faced since October 1981 when ONS started estimating CPI. However, the inflation rate has been falling, CPI rose by 6.7% in the year to August 2023, down from 6.8% in July.
Does that mean that the price of sugar will fall? Unfortunately no! The price of sugar and of many other products will continue increasing but not so rapidly as it happened during 2022. A fallen inflation rate doesn’t mean that the prices are dropping. It means that the prices are rising, but not as fast as they used to.
Why is all of that happening?
There are 3 main global reasons:
It started with a strong global demand for consumer goods after the pandemic. A lot of people built savings during the lockdown periods, as we couldn’t spend them in the local pub etc. So when the economy opened up again we had a lot of appetite to go out, travel and spend money.
There were also issues related with the supply of products as the COVID-19 pandemic affected the distribution of products around the world, either because of workers suffering from COVID or “Long Covid” or because of government policies such as China’s shutdown of factories to avoid transmission of COVID-19.
The above in combination of soaring energy and fuel prices which were a consequence mainly but not exclusively of Russia’s full-scale invasion of Ukraine in February 2022
The combination of the above factors and the fact that the UK is a large importer of goods and products (including energy) has caused the UK to have one of the highest inflation rates in Europe.
How are you affected by inflation ?
Except for the higher prices that all of us had to pay for energy last winter, our budget for food has been affected as well.
The highest price increase has been in sugar which increased by more than 50% over the last year. That is because of the weather conditions affecting production across Europe, Brazil and India. The increased price of sugar also means that other products which are based on sugar will see higher prices.
Other essential food products such as eggs, yogurt and pasta saw increased prices by 22%, 21.6% and 24.5% respectively.
The people who are affected more though are those living in the poorest households, as a greater proportion of their expenditure is spent on food and energy prices. According to the latest research from ONS, the poorest households faced higher inflation in the year to October 2022; 12.5% for the poorest tenth of households, compared to 9.6% for the richest ten percent of households. But also people living with disabilities and older households would have faced the impact of inflation as they consume more energy.
The good news though is the food price increases have started slowing down, they are still increasing but at a lower rate.