Resolution: Inflation hits double digits for low-income families
The Resolution Foundation is urging the government to help poorer families now, after calculating that those on lowest incomes are now suffering double-digit inflation, while richer households are less badly hit.
Resolution’s analysis shows that inflation is now 10.2% for the poorest tenth of households, significantly higher than for the richest tenth of households (8.7%, it calculates).
As the IFS flagged earlier, this is because lower income households spend a greater share of their family budgets on energy bills, where prices are rising sharply.
The Foundation says that while everyone is affected by the tightest squeeze in household incomes in half a century, low-income households are facing the toughest time, and should therefore be the top priority for further support.
And the best way to do that is by uprating key benefits such as Universal Credit, or by a “radical increase in the ambition” of the Warm Homes Discount scheme, to cut bills for poorer families.
Benefits only rose by 3.1% in April, in line with last September’s inflation reading – so are lagging inflation.
Jack Leslie, senior economist at the Resolution Foundation, says the government must provide “further targeted support” for those lower income families at the sharp end of this crisis.
“Inflation reached a 40-year high last month off the back of a sharp rise in energy bills and the highest food price inflation in a decade. These recent drivers of inflation mean that lower-income families are facing the most severe cost pressures, with their inflation rate already hitting double digits.
“Inflationary pressures are likely to continue to grow through the year as the effects of higher energy prices continue to work their way through businesses and into consumers’ pockets.
“Nobody knows how long these pressures will last, or how workers will respond via higher wage demands, which is why the Bank faces a tough judgement on the pace and scale of interest rate rises.
Leslie has written a Twitter thread, explaining how we face an economic crisis:
UK house price growth slowed in March, although the price of the average property still hit a fresh record.
The Office for National Statistics reports that:
- UK average house prices increased by 9.8% over the year to March 2022, down from 11.3% in February 2022.
- The average UK house price was £278,000 in March 2022, which is £24,000 higher than this time last year.
- Average house prices increased over the year in England to £298,000 (9.9%), in Wales to £206,000 (11.7%), in Scotland to £181,000 (8.0%) and in Northern Ireland to £165,000 (10.4%).
- London continues to be the region with the lowest annual growth at 4.8%.
The ONS also found that private rental prices paid by tenants in the UK rose by 2.7% in the 12 months to April 2022, up from 2.4% in the 12 months to March 2022.
Inflation: the full story
Phillip Inman
UK inflation soared to 9% in April – its highest level for more than 40 years – as the rising cost of gas and electricity pushed household energy bills to record levels.
The escalating cost of food and transport also contributed to the rising cost of living, deepening the crisis affecting millions of low- and middle-income families.
Business groups said all sectors of industry and commerce were suffering from the steep rise in energy and fuel costs, with many facing a similar shock to their finances as seen during the pandemic but without the same level of government support.
The Office for National Statistics said the 54% increase in the energy price cap in April, which took the average annual gas and electricity bill close to £2,000, was the main reason for the jump in the consumer prices index from 7% in March.
Average petrol prices rose to a record 161.8p a litre in April 2022 from 125.5p a year earlier. Diesel was another factor behind the increase in the consumer prices index from 7% in February after the average cost at the pumps hit a record high of 176.1p a litre, leading to an average increase over the last 12 months in motor fuels of 31.4%.
The end of a temporary VAT cut for the hospitality industry also pushed up prices after restaurants and hotels said they were unable to cushion customers from the increase in the tax from 12.5% to 20%.
A steep fall in the value of the pound on foreign exchange markets piled further pressure on businesses by adding to the cost of imports. Sterling has slumped since last month, from more than $1.30 to $1.24 after hitting $1.22 last week. More here.
Jane Jones, a supermarket worker from Flintshire, Wales, has told the Guardian how shoppers have been hit by rising inflation.
Many people have been arriving in the evening to pick up reduced short-dated food, and more have been asking cashiers to stop scanning good when their bill hits £40.
There’s also an increase in people shoplifting everyday items – even baby milk, showing the struggle faced by some families.
She explains:
We used to get shoplifters stealing high-value things to sell on, which is not uncommon. Now it’s people stealing everyday things, doing their weekly shop and trying to walk out without paying.
Baby milk has never been security tagged but now it is, so people can’t steal it. It was something that never would happen before but people are quite desperate.
Here’s the story:
Resolution: Inflation hits double digits for low-income families
The Resolution Foundation is urging the government to help poorer families now, after calculating that those on lowest incomes are now suffering double-digit inflation, while richer households are less badly hit.
Resolution’s analysis shows that inflation is now 10.2% for the poorest tenth of households, significantly higher than for the richest tenth of households (8.7%, it calculates).
As the IFS flagged earlier, this is because lower income households spend a greater share of their family budgets on energy bills, where prices are rising sharply.
The Foundation says that while everyone is affected by the tightest squeeze in household incomes in half a century, low-income households are facing the toughest time, and should therefore be the top priority for further support.
And the best way to do that is by uprating key benefits such as Universal Credit, or by a “radical increase in the ambition” of the Warm Homes Discount scheme, to cut bills for poorer families.
Benefits only rose by 3.1% in April, in line with last September’s inflation reading – so are lagging inflation.
Jack Leslie, senior economist at the Resolution Foundation, says the government must provide “further targeted support” for those lower income families at the sharp end of this crisis.
“Inflation reached a 40-year high last month off the back of a sharp rise in energy bills and the highest food price inflation in a decade. These recent drivers of inflation mean that lower-income families are facing the most severe cost pressures, with their inflation rate already hitting double digits.
“Inflationary pressures are likely to continue to grow through the year as the effects of higher energy prices continue to work their way through businesses and into consumers’ pockets.
“Nobody knows how long these pressures will last, or how workers will respond via higher wage demands, which is why the Bank faces a tough judgement on the pace and scale of interest rate rises.
Leslie has written a Twitter thread, explaining how we face an economic crisis:
Rising food prices hit households
Food and non-alcoholic prices have risen at the fastest rate since 2011, hitting families, and pushing CPI inflation to 9%:
That includes double-digit increases for some food items such as pasta (+10.4% in the last year), lamb (14.3%), beef and veal (+10.2%), poultry (+10.1%), oil and fats (+14.5%) and milk.
That’s on top of the jump in costs for petrol (+28.9%), electricity (+53.3%) and gas (+95.5%).
Economist Richard Ramsey has crunched through today’s inflation report, to show the factors pushing prices higher.
Here’s a breakdown of the main factors that drove up inflation:
- Food and non-alcoholic beverages: 6.7%
- Alcoholic beverages and tobacco: 4.4%
- Clothing and footwear: 8.3%
- Housing, water, electricity, gas and other fuels: 19.2%
- Furniture, household equipment and maintenance 10.5%
- Health: 2.3%
- Transport 13.5%
- Communication 2.8%
- Recreation and culture 5.9%
- Education 4.5%
- Restaurants and hotels 7.9%
- Miscellaneous goods and services 2.9%
Retail price inflation, another measure of rising prices, jumped to a 40-year high of 11.1% in April.
RPI is a discredited measure (the ONS say it’s a very poor measure of general inflation), but unlike CPI it includes mortgage interest payments, so it measures changes in house prices and interest rates.
Despite losing its status as a National Statistic, RPI still has some significant uses. That includes setting the interest rate on index-linked government bonds, and for annual changes in costs such as train tickets, mobile phone tariffs, and the interest rate on student loans.
Unite general secretary Sharon Graham has hit back at demands for wage restraint, saying that calls for reflection should be directed to FTSE 100 CEOs:
“The alarm bells are ringing very loudly now. Earnings are being pummelled, the government is, shamefully, turning its back on those in need and employers are squeezing wages. So, we will absolutely take no more lectures on pay restraint from the millionaire governor of the Bank of England.
“If Andrew Bailey wants to lecture anyone about belt-tightening, he should direct his attention to the CEOs of the UK’s top 100 companies who have seen their wages swell by an average of 34 per cent to an astonishing £4.1 million a year. Ask them to pause to reflect about the scale of their corporate greed.
IFS: Poorest households facing even higher inflation rates
Inflation is even higher than 9% for the poorest families in the UK, because they spend more of their total budget on gas and electricity.
The Institute of Fiscal Studies, the leading economics thinktank, has calculated that the bottom 10% of the population in terms of income faced a rate of inflation rate of 10.9%.
That’s 3 percentage points higher than the inflation rate of the richest 10%.
Most of this difference is because poorest households spend 11% of their total household budget on gas and electricity, compared to 4% for the richest households, the IFS says.
Heidi Karjalainen, research economist at the IFS said this means a large drop in real terms income for poorer households:
”Inflation hit 9% in April. Because so much of the increase was driven by the increase in the gas and electricity tariff cap, poorer households who spend more of their budgets on gas and electricity, faced an even higher rate of inflation. We estimate that the poorest 10% of households faced an inflation rate of 10.9%. State benefits only increased by 3.1% in April. This means big real terms cuts to the living standards of many of the poorest households.
“Continuing pressures, such as the war in Ukraine, are likely to push Ofgem’s October tariff cap, as well as other prices including food prices, even higher later this year. We are likely to be in a prolonged period during which poorer households are facing rates of inflation even higher than the headline figures would suggest.”
Hilary Osborne
Figures from the advice charity Citizens Advice give an insight into how many households are struggling with inflation.
It said so far in May it has referred more than 750 people a day to food banks.
So far this year it has supported almost 30,000 people with energy debts – 26% more than in 2021 – and dealt with more cases of people unable to top up their prepayment energy meter than it did in the whole of last year.
Its chief executive, dame Clare Moriarty, said:
“The warning lights could not be flashing brighter. The government must bring in more targeted support to help people cope with this mounting crisis.”
Moriarty said there were desperate stories behind the headline figures, including:
“people washing in their kitchen sinks because they can’t afford a hot shower; parents skipping meals to feed their kids; disabled people who can’t afford to use vital equipment because of soaring energy bills.
The FT’s Chris Giles points out that the UK now has the highest inflation rate among G7 countries, and among the highest of any advanced economy in the world.
Rowena Mason
Liz Truss, the foreign secretary, acknowledged it was a “very, very difficult situation that families face” in the face of a “severe global economic storm” but declined to say what the chancellor would do about it.
Speaking to BBC Breakfast, she said:
“This is a very, very serious global inflation spike which is having huge effects around the world.
We have made the cuts to petrol duty and the chancellor is working on what more we can do.
The important thing is getting economic growth up.”
Truss also told Sky News that Britain is facing a “very, very difficult economic situation”, but pushed back against calls for a windfall tax on energy producers, saying they should use their profits to invest more in the UK.
The Institute of Directors says UK inflation is “shockingly high”.
Kitty Ussher, Chief Economist at the Institute of Directors, says Rishi Sunak should say if he plans to provide more help on energy bills, as is being reported today.
Ussher explains:
“Business leaders tell us that the UK macroeconomy is now their number one negative issue, driven by worries over inflation. As a result, firms are becoming more reluctant to invest, storing up problems for the economy in future.
“If the Chancellor intends to intervene in advance of the further price cap rise in the autumn, he should make that clear, to start bringing expectations of future inflation back down.”
The Times this morning reports that the chancellor is drawing up plans to increase the warm home discount by hundreds of pounds, before cutting taxes to help with the cost-of-living crisis.
They say:
The chancellor will take a two-pronged approach: a package to help with energy bills in July followed by general tax cuts in the autumn.
From October the warm home discount will give three million of the poorest households in England and Wales £150 off their bills. Treasury officials have drawn up a range of options, including a one-off increase of £300, £500 or even £600 to help households to cope with soaring energy prices.
CBI: Critical that government helps people facing hardship
The CBI, which represents British businesses, says it is ‘critical’ that the government helps people facing real hardship now in this ‘historic’ squeeze.
Rain Newton-Smith, CBI chief economist, said the government must also support vulnerable firms:
Inflation was always likely to hit hard in April given the energy price cap increase. Looking ahead, inflation is likely to stay high, with a resulting historic squeeze in households’ incomes and a tough trading environment for businesses.
“It is critical the government explores options to help people facing real hardship now, and support cashflow for vulnerable firms. Stimulating business investment is also crucial, to both plug the near-term gap in growth and to shore up the economy’s potential to withstand future shocks.
Turning good intentions on a permanent investment deduction into a firm commitment, setting out an infrastructure roadmap and publishing a digital strategy are steps which can be taken without delay.”
Shadow chancellor Rachel Reeves said the rate of inflation hitting 9% in April would be “a huge worry for families already stretched”, and urged the government to back Labour’s call for an Emergency Budget.
Sunak: cannot protect people completely from global challenges
Rishi Sunak, who is facing growing pressure from all sides to offer more help to households, has said the government ‘can’t protect people completely’ from high inflation.
The chancellor says countries around the world were being hit by rising prices, and that the increase in regulated energy tariffs pushed up inflation in April.
“We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”
Inflation in the US was 8.3% in April, while it hit a record high of 7.5% in the eurozone — with countries around the world experiencing higher costs of energy and food.
But the longer Sunak simply ‘stands ready’, the more struggling families will suffer.
ONS: Inflation rose steeply in April
Grant Fitzner, chief economist at the Office for National Statistics (ONS), says there was a steep increase in inflation last month:
“Inflation rose steeply in April, driven by the sharp climb in electricity and gas prices as the higher price cap came into effect.
“Around three-quarters of the increase in the annual rate this month came from utility bills.
“We have also published new modelled historical estimates today which show that CPI annual inflation was last higher 40 years ago.
“Steep annual rises in the cost of metals, chemicals and crude oil also continued, along with higher prices for goods leaving factory gates.
“This was driven by increases for food products, transport equipment and metals, machinery and equipment.”