NewsPersonal Finance

The True Cost Of Inflation: What Rising Prices Mean For You

Supermarket trolley pushed down supermarket aisle

If you’ve been following the news over the past couple of weeks, then you may have seen that inflation has hit a 30-year-high, with outlets widely reporting a 5.4% rise over the past 12 months.

Inflation refers to the rate at which prices are rising, and with stagnant wages, many are seeing that the cost of living is going up far faster than income.

Although 5.4% inflation may sound high, unfortunately the true costs may be even greater. Writer and anti-poverty activist Jack Monroe has highlighted the disparity in the way that inflation is calculated and the cost of everyday items that many families rely on.

In fact, her research shows that many basic food items have doubled or tripled in cost.  As one example, she looked at a simple staple food: pasta. Jack said: “Last year the Smart Price pasta in my local Asda was 29p for 500g. Today it is unavailable, so the cheapest bag is 70p; a 141% price rise for the same product in more colourful packaging.”

So what does this mean? Well, the country’s inflation rate is used to help the government make informed decisions around economic policies that will support lower income households. It’s used by the Bank of England when setting monetary policies that are designed to keep the inflation rate low and stable. It can even be used by employers to help calculate how much wages need to rise.

An inflation rate that doesn’t take into account the purchases made by lower income households can mean that these things become skewed. If you’re struggling to keep up with your everyday household costs (perhaps even despite a recent pay rise), then this could be why.

Thanks to Jack Monroe’s efforts, there could be change coming soon. The Office for National Statistics (ONS) have acknowledged that the way they collect data currently may not take into account the vast difference between different households’ spending habits. They have committed to greatly increasing (and diversifying) the products and price points that they use to calculate inflation. While the final result will still be an average, it should be more representative of ordinary people.

As wev’e written about recently, several different things are expected to drive the cost of living up this year. However there’s also some good news. In April, the national living wage is going up by a substantial 6.6%, to £9.50 an hour. And in some sectors – such as lorry driving – workers are starting to see their salaries increase faster than prices. Workers across different industries are also starting to put more pressure on employers to acknowledge that wages need to go up in order to keep up with costs.

Jack Monroe has stated on her twitter page that the next step will be: “to lobby, with hard data and facts, for a guaranteed decent income for everyone, regardless of employment status, household, or physical ability. Real Living Wages, Universal Basic Income, and benefits in line with the true cost of living.” While we’ve seen these types of campaign many times over the past decade, the fact that important institutions such as the ONS are starting to take notice seems to be a positive sign of change to come.

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