The inflation rate of 8.7% in April 2023 means prices have risen by 8.7% on average in comparison to what they were in April 2022.
Inflation has eased, as it was at 10.1% in March. But even though the inflation rate has fallen, prices are still rising and will continue to do so as long as inflation is in the positive figures.
The drop to 8.7% per cent was due to lower energy prices following the steep hike seen last year when Russia invaded Ukraine, but stubbornly expensive food prices meant that inflation remained high. Food prices increased by 19.1% in comparison to last year, down by just 01.% on the previous month.
If you want to see just how much more expensive your shopping basket is going to be as a result of inflation, you could use a price comparison website like Trolley. It has a grocery price index with data showing how much all your basic supermarket items have increased in recent months.
Will prices in the UK ever come down?
The simple answer is that UK prices across the board will probably never come down – and almost certainly not by very much – but our wages are supposed to keep up with rising prices to make us less likely to feel the pinch.
The problem is, that has not happened in some time. If you were wondering why workers are taking to the streets and demanding better pay, that is why. Pay packets are essentially shrinking as long as people’s pay rises slower than the rate of inflation.
For prices in the UK to fall, inflation would need to go into negative figures, often called deflation. That is a rarity. The last time this happened was in 2015, when prices fell by a grand total of 0.1% because of a sudden drop in the price of oil. Before that was in 2009, during the global financial crisis, but economists disagree on the details as only one measure of prices was negative. You have to go back to 1960 to find another example of deflation.
But don’t panic. The cost of living crisis will come to an end eventually. Prices will stabilise and grow more slowly and wages should catch up. It just depends how long we take to get there.
When will the cost of living crisis end?
The cost of living crisis will be over once prices stabilise and wages have risen enough to match, and that is unlikely to happen for some time yet. Experts predict it will be at least another few years, possibly lasting until 2028.
The Office for Budget Responsibility is warning of a big drop in living standards over the next two years. Once inflation is taken into account, household disposable income is set to fall by 5.7% between 2022 and 2024. That is the largest two-year fall since records began in the mid-1950s.
Responding to new monthly inflation figures, Rachelle Earwaker, senior economist at the Joseph Rowntree Foundation, said: “The headline rate of inflation may have fallen but that will offer little comfort to the millions of households struggling with the sky-high cost of living. Falling inflation does not translate to lower prices either – higher costs are now baked in.
“Most concerningly there has been no fall in annual food price inflation, which is running at an eye-watering 19%. The cost of food has been consistently increasing for 18 months, with dire consequences: millions of families on low incomes are going hungry, unable to afford regular, healthy meals. This is not just a crisis right now – without action it will have an impact on our nation’s health long into the future. Are we really ok with this becoming the norm?”
But there is light at the end of the tunnel. The Bank of England predicted that inflation will fall quite quickly this year. The Bank of England’s current predictions are that inflation will begin to fall from the middle of this year and be around 5% by the end of the year. It forecasts that inflation will continue falling towards its target of 2% after that.
This is because wholesale energy prices have fallen, there is set to be a sharp drop in the price of imported goods, and people simply have less to spend meaning there is less demand for consumer products.
According to the experts at the Resolution Foundation, this means the cost of living crisis should ease in 2024. But it won’t fully be over until wages catch up.
Brace yourself: real wages compared to prices are not expected to return to 2021 levels until 2027. For the typical household, incomes are actually set to be below pre-pandemic levels in real terms even in 2027-2028. So we still have a long way to go.
Will energy bills come down?
Good news, at last. Energy bills are expected to fall soon.
Ofgem is preparing to lower the energy price cap. Forecasts suggest typical household energy bills will fall to an average of just over £2,000 a year this summer.
Analysts at consultancy Cornwall Insight forecast that Ofgem’s energy price cap will be set at £2,053 in July. The cap will finally be lower than the government’s energy price guarantee, and our bills should fall with it.
The government’s energy price guarantee will no longer be in place after July, with energy bills finally below £2,500. The energy price cap doesn’t mean no one will pay more than £2,053 – this figure refers to the amount a household will pay based on average energy usage. If your household uses more energy than average, you may pay more.
The government’s energy rebate scheme, a discount on household energy bills, ended in March. This had been a lifeline to many people, helping them save around £66 each month. The end of this support means people may not feel the positive impact of energy bills falling.
Simon Francis, coordinator of the End Fuel Poverty Coalition commented: “The latest price cap will send a chill down the spine of customers. People now face many more months with bills remaining stubbornly high. This will see them continue to use up their savings, run up credit card bills, fall into debt with energy firms or turn to food banks as the cost of living crisis deepens.”
Are prices rising at the same rate for everyone?
Unfortunately not. Prices are rising even faster for poorer households. This is because the costs of essentials are soaring at higher rates, and low-income families typically spend a greater proportion of their income on these items.
Food and drink prices have risen by 19.1% in the year to April – near to their highest rate in over 45 years. This was driven by skyhigh increases in sugar (47.4%), olive oil (46.4%) and eggs (37%).
The Resolution Foundation has found that poorer families are most affected by surging food prices as they spend a far greater share of their family budgets on food (14%, compared 9% for the highest-income households).
As a result, the effective inflation rate for the poorest tenth of households is around 2% higher than it is for the richest tenth of households.
“Almost nine in 10 families on universal credit cannot afford basic items like food and clothing,” Earwaker added. “For them, inflation falling back towards the Bank of England’s target doesn’t suddenly make costs manageable. The government must ensure that benefits always cover the cost of essentials – sporadic, short-term support packages are not enough.” Meanwhile, billionaires in the UK already have more than £683 billion of wealth between them. Between 2020 and 2023, billionaire wealth ballooned by almost £180bn.
Income inequality will rise every year and could reach a record high of 40.8% by 2027-2028, according to the Resolution Foundation’s predictions. What does this mean exactly? The rich are getting richer, and the poor are getting poorer. Read more about why the cost of living crisis is hitting everyone’s incomes but the richest here.
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