![]() The government uses September’s figure to set state benefit rises for the following financial year, so if inflation stays high it could lead to discussions in government about whether to stick with the pensions triple lock. ![]() This year, a different figure was used but it will be worth keeping an eye on next month’s inflation report in case the government goes back to the usual formula. Typically, July’s data determined the next year’s regulated rail fares. June’s inflation figure is not used to set any government-backed payments or prices. However, a higher rate of inflation means that workers are still out of pocket despite that growth so employers may come under pressure to consider further increases. Wages have been increasing, with recent figures showing that annual earnings growth hit 7.3% in the three months to May. What does this mean for pay and benefits? Last week, the ONS published research showing that one in 20 adults had run out of food and been unable to buy more at some point in the spring. State benefits did rise by 10.1% in April, offering some relief to those on the lowest incomes, however, there are clearly people struggling to keep up with rising living costs. A campaign group called the Deprived Pensioners Association says there are 60,000 members aged over 80 of now-defunct retirement schemes whose payouts are not linked to inflation who are at risk of “serious financial hardship”. Who is losing out?Īnyone whose income growth has not kept up with inflation will be suffering, but some people will be harder hit than others. If you believe that inflation will eventually come down, then locking into an account paying that rate for three years could mean you will happily beat inflation before the end of the term. However, while inflation remains higher the value of any money you keep in an account is still effectively falling. “The top rate easy-access accounts would have paid more over that time, but nowhere near current inflation of 7.9%,” she says.Ĭompetition in the savings market, combined with recent base rate hikes and pressure from the finance regulator have pushed best-buy savings rates to over 6% in recent weeks, which in normal times would sound fantastic. Laura Suter from advice firm AJ Bell says a saver who put £1,000 in an average easy-access account a year will find it’s now worth £938 in real terms, having earned 1.18% interest over that period. Personal loans and credit cards have already become more expensive as a result of rising base rates and will get costlier if this month’s inflation figure persuades the Bank to vote for another increase in August. However, the latest inflation figures may mean that fixed-rate deals, which are tied to expectations of future rate rises, start to drop slightly. Mortgage rates linked to the base rate will go up if it is increased again. Instead, they are now betting that a quarter-point rise is more likely.īut with inflation still almost four times the Bank’s target there are likely to be further interest rate rises that will in turn lead to higher borrowing costs. If the rate had stayed above 8% then some economists had suggested the Bank may have gone for another half-point increase in interest rates next month. The fact that inflation has dropped back a little is potentially good news for borrowers. This week, figures from the Insolvency Service showed year-on-year increases in the number of people taking out debt relief orders and new breathing space registrations that allow people to freeze their debts for 60 days – a sign that people are struggling with high living costs. And on top of that some face rising mortgage costs – these are included in the CPIH, not CPI. Households are still having to pay 17.4% more for groceries than they were early last summer (a pint of milk is up by 21.7% year-on-year) and gas and electricity prices are up by 36.2% and 17.3%, respectively, putting a strain on household budgets. It is the annual CPI rate that influences Bank of England interest rate decisions. The rates are different because of the various goods and services included in the price tables, and also because of the way the figures are calculated. The indices measure changes in the cost of a huge number of products – from shampoo to secondhand cars, and services including insurance and air travel. There are several different rates recorded by the economists: CPI, the retail prices index (RPI), and CPIH (CPI including owner occupiers’ housing costs). The monthly inflation rates reported by the Office for National Statistics capture the change in the cost of living in the UK.
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