The inflation rate has risen sharply over recent months and the July figure was the highest annual CPI inflation rate in the ONS’ National Statistic series which began in January 1997.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8 per cent in the 12 months to July 2022, up from 8.2 per cent in June. The July 2022 figure is the highest recorded annual inflation rate in the National Statistic series, which began in January 2006.
The biggest contributors to the annual CPIH inflation rate in July 2022 came from housing and household services (mainly energy, fuel, and owner occupiers’ housing costs), transport (petrol and diesel), and food and non-alcoholic drinks.
The typical cost of food and soft drinks have gone up 12.6 per cent in a year, reflecting not only global supply problems, but also the massive pressure on farmers who are struggling with staff shortages and rising input costs across the board. Prices are also hit by rising energy and transport expenses at every stage in the process.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Anyone on a tight budget has had to wrestle with alarming rises in the cost of some staples – with milk prices up more than a third, and flour, butter and pasta all up around a quarter in a year. These are truly horrible hikes and are hitting people where it hurts.
“In the ONS surveys, food has always topped the list for the rises that people feel most keenly, and is second only to energy as the cost that keeps them up at night. It’s why, at the end of July, two in five people were trying to cut back on food and essentials.”
StepChange said the cost of living is now the number one reason for new clients’ debts, with the debt charity renewing its calls for more help from government for those on low incomes.
Phil Andrew, StepChange CEO, said: “Bringing the uprating of benefits forward from April 2023 to September would be a welcome way to begin to support the most financially vulnerable, as would bringing in a new targeted financial package that matches the scale of the projected October price cap rise. We would also like to see a commitment to pausing unaffordable government debt deductions, which are already a cause of major hardship.
“Months of rampant inflation will have left many low income households staring down the barrel of debt and destitution. A clear and ambitious set of measures to save them this from this fate is needed, and fast.”
High inflation puts further pressure on BoE to increase interest rates
Simon Webb, managing director for capital markets and finance at LiveMore, said that as inflation had rose above 10 per cent “earlier than expected”, it put further pressure on the Bank of England (BoE) to raise base rates, adding that another 0.5 per cent increase could be on the cards.
Earlier this month, the BoE made its sixth consecutive increase on the base rate, increasing it by 0.5 per cent to 1.75 per cent. The last time the BoE upped the base rate by 0.5 per cent was in 1994.
“This brings into sharper context why borrowers should opt for long-term fixed rate mortgages so they can beat inflation and be certain their monthly payments won’t rise for a fixed period of time,” Webb added.
Property growth may slow and gifting under scrutiny
Kay Westgarth, head of sales at Standard Life Home Finance, said it was “clear” that the cost-of-living crisis was “squeezing household finances” for both homeowners and prospective buyers.
She said with rising inflation and record energy prices, it was “not surprising” there were more people delay their aspiration to own a property.
“While the property market has remained resilient and the long-term picture looks positive, growth may well slow in the coming months,” Westgarth said.
She continued that advisers should take the opportunity to “provide some reassurance” to older clients in these complex economic times, as they could be concerned about their own and their family’s financial security.
“Parents and grandparents have always been keen to support the younger generation but with the cost-of-living squeeze making it harder to save, they may well be the best hope for some who are keen to buy their first home.
“However, older clients must themselves be financially sound before considering gifting money to a friend or family member, and so the role of the adviser will remain essential as more people seek new solutions to the widening intergenerational wealth gap,” she added.
