Rising Cost Of Living & Inflation

Rising Cost Of Living

Rising Cost Of Living

By Chris Siddell, Halal Incorp

How inflation works | CNBC Explains

So, what is inflation? Inflation refers to the rate at which costs of goods are growing. For example, if the price of a loaf of bread is £1 and it rises by 5p, then bread inflation is 5%. Or if a bottle of milk is £1 and the price rises to £1.05, milk inflation is 5%, etc.

If a price rises month to month, it may not be exceptionally recognisable or noticeable to you. However, right now, prices are increasing so rapidly that the money people earn does not go as far as it once did.

Rising Cost Of Living

You may ask yourself, why is it that prices are rising now? The primary reason is the soaring global price of energy. This has resulted in higher energy and transport bills for businesses, many of which pass on the additional costs to customers.

Supply disruptions and greater shipping prices also continue to trouble businesses. Also, the High Street retailer, has acknowledged its costs could increase by up to 6% this year to keep up with other higher costs. A shortage in staff is also a particular issue in the UK, due to Brexit and the pandemic, and are encouraging some employers to put up wages.

However, this can also add to the inflation crisis at hand. Greggs, for example, has raised the price of some of its products in an attempt to cover increased labour costs.

A lot of people are often curious as to how inflation will impact themselves and their day to day lives. Firstly, it could mean that the money you earn may not go as far as it once did, unfortunately. In the year to November 2021, ordinary wages, other than bonuses and adjusted for inflation, fell 1%.

Rising Cost Of Living

There are people who work in certain sectors, including lorry drivers, who are in an exceptionally high demand at the moment, and whose wages are rising faster than prices. In April, the lowest-paid individuals will see the National Living Wage rise by 6.6% to £9.50 an hour, which is higher than the current inflation rate. However, lots of people are witnessing a evident drop in their “real” wages.

What other factors could impact the cost of living in 2022? Numerous measures will hit UK households. One example is the average gas and electricity bills will rise by £693 a year from April. Regulated rail prices in England will also rise, by 3.8% in March.

The cost of TV and broadband prices are also expected to see an increase at that time as well. In April, businesses, workers and the self-employed will start giving an extra 1.25% in National Insurance contributions under the Health and Social Care Levy. A rise in interest rates will mean mortgage payments will be higher for some homeowners.

Rising Cost Of Living

How do we measure inflation? Inflation is determined by a body referred to as the Office for National Statistics (ONS), which reports the prices of hundreds of everyday things.

These items are labelled as the “basket of goods”, and they’re forever being updated. For example, in 2021 hand sanitiser and men’s loungewear bottoms were added to the list, but sandwiches bought in the workplace were taken off. The ONS announces its measure of inflation every month, showing how much these prices have risen since the same date last year, termed as the Consumer Prices Index (CPI).

What can be done, and how can we deal with inflation? The Bank of England’s usual response to a rise in inflation is to increase interest rates. That means some people who have loaned money could see their monthly payments go up, specifically on mortgages tied to the Bank of England’s rates. The concept is that when lending is more costly, people will have fewer amounts of money to use.

As a result, they will purchase less things, and prices will steady as a response. But if inflation is triggered by external factors, such as the global squeeze on energy prices, then this might not be the answer to the issue. The government might decide instead to cut taxes for consumers on items that are rising swiftly. an array of actions taking place to reduce the effect of energy price rises, for example.

Disclaimer: The views of the author do not necessarily reflect the views of Halal Incorp. This article does not provide financial advice. When seeking financial advice always refer to professional financial advisors.

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