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Poorest UK households facing highest inflation rates as cost of living crisis deepens – business live


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:

The latest @ONS inflation figures are out and this is a crucial month because we get the first estimate of the impact of the energy price cap uplift. CPIH inflation rose to 7.8% and CPI hit 9.0%. Deep-dive thread on the key points… pic.twitter.com/kJ63c9Zh30

— Jack Leslie (@jackhleslie) May 18, 2022

So what does this mean for families? The cost of living crisis is already having widespread economic consequences: ONS survey find 51% of people facing rising costs are cutting back on energy and 35% spending less on food/essentials. pic.twitter.com/AXcsrFFuAj

— Jack Leslie (@jackhleslie) May 18, 2022

This inflation rate is significantly higher than the rate for high-income families – the gap between the highest and lowest income families is estimated to be at least around 1.5ppts. That’s a huge additional hit to living standards for poorer families. pic.twitter.com/10g5WtEIxm

— Jack Leslie (@jackhleslie) May 18, 2022

While everyone faces rapid cost increases poor families are much more exposed. Estimating differences in inflation rates across the distribution is tricky because the pandemic changed spending patterns, but the poorest tenth of families are facing inflation above 10%. pic.twitter.com/6ZoH2jJJNS

— Jack Leslie (@jackhleslie) May 18, 2022

So what does that mean for policy? Clearly more needs to be done. The real value of benefits continues to decline rapidly causing difficulties for families already struggling. pic.twitter.com/f7PUU7Uxcj

— Jack Leslie (@jackhleslie) May 18, 2022

The current situation is clearly unsustainable. The Bank of England are forecasting real household disposable incomes to fall at the second fastest rate since records began in the 1960s. This is a major economic crisis and the gov should be stepping up to deal with it.

— Jack Leslie (@jackhleslie) May 18, 2022

Inflation in the eurozone was slightly less hot than first estimated last month, but still a record.

Eurozone CPI has just been revised down to 7.4% in April 2022, from 7.5% initially, which matches March’s reading.

The lowest annual rates were registered in France, Malta (both 5.4%) and Finland (5.8%). The highest annual rates were recorded in Estonia (19.1%), Lithuania (16.6%) and Czechia (13.2%).

Petrol prices hit record high

The price of petrol in the UK has hit a new alltime high, adding to the cost of living pressures.

Petrol’s average pump price across the UK hit a new record of 167.64p a litre on Tuesday.

The previous record of 167.30p a litre was set on 22 March, the day before the Chancellor’s Spring Statement when Rishi Sunak announced a 5p/litre cut to fuel duty.

Motoring bodies warned that retailers were not passing on that cut in full.

Diesel prices continue to climb to new highs, reaching an average of 180.9p per litre on Tuesday.

The AA has calculated that the cost of filling the typical 55-litre has risen from £70.61 to £92.20 for petrol, over the last year, and from £71.94 to £99.48 for diesel.

Luke Bosdet, the AA’s fuel price spokesman, says:

“Despite his best efforts, the Chancellor must feel like King Canute having tried to reverse the tide of rising pump prices. At least though, he can say that UK drivers would be £2.75 a tank even more worse off now had he not tried to take action in March.

He hasn’t been helped by a fuel trade that, despite a 16p-a-litre fall in petrol costs that coincided with the Spring Statement, couldn’t even pass on the full 5p fuel duty cut and the 1p VAT reduction that it brought with it.”

RAC fuel spokesman Simon Williams said the move will add to the UK’s worsening cost-of-living crisis.

While the average price of both petrol and diesel would have been far higher without the historic duty cut, it’s also unfortunately the case that drivers haven’t seen the full benefit at the pumps due to major retailers upping their margins.

As flagged earlier, business secretary Kwasi Kwarteng has warned petrol bosses the competition regulator is monitoring the situation:

My letter to petrol retailers this evening following concerns the Chancellor’s 5p Fuel Duty cut is not being passed on in any visible or meaningful way.

The Competition and Markets Authority is now engaged on this issue.

👇🏾 pic.twitter.com/a7ysGyvWWA

— Kwasi Kwarteng (@KwasiKwarteng) May 17, 2022

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.

Commenting on today’s HPI figures for March and rental data for April, ONS house prices statistician Ceri Lewis said: (1/2)

pic.twitter.com/4K9UWfJmYC

— Office for National Statistics (ONS) (@ONS) May 18, 2022

Inflation: the full story

Phillip Inman

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:

The latest @ONS inflation figures are out and this is a crucial month because we get the first estimate of the impact of the energy price cap uplift. CPIH inflation rose to 7.8% and CPI hit 9.0%. Deep-dive thread on the key points… pic.twitter.com/kJ63c9Zh30

— Jack Leslie (@jackhleslie) May 18, 2022

So what does this mean for families? The cost of living crisis is already having widespread economic consequences: ONS survey find 51% of people facing rising costs are cutting back on energy and 35% spending less on food/essentials. pic.twitter.com/AXcsrFFuAj

— Jack Leslie (@jackhleslie) May 18, 2022

This inflation rate is significantly higher than the rate for high-income families – the gap between the highest and lowest income families is estimated to be at least around 1.5ppts. That’s a huge additional hit to living standards for poorer families. pic.twitter.com/10g5WtEIxm

— Jack Leslie (@jackhleslie) May 18, 2022

While everyone faces rapid cost increases poor families are much more exposed. Estimating differences in inflation rates across the distribution is tricky because the pandemic changed spending patterns, but the poorest tenth of families are facing inflation above 10%. pic.twitter.com/6ZoH2jJJNS

— Jack Leslie (@jackhleslie) May 18, 2022

So what does that mean for policy? Clearly more needs to be done. The real value of benefits continues to decline rapidly causing difficulties for families already struggling. pic.twitter.com/f7PUU7Uxcj

— Jack Leslie (@jackhleslie) May 18, 2022

The current situation is clearly unsustainable. The Bank of England are forecasting real household disposable incomes to fall at the second fastest rate since records began in the 1960s. This is a major economic crisis and the gov should be stepping up to deal with it.

— Jack Leslie (@jackhleslie) May 18, 2022

Rising food prices hit households

Sunflower oil shelves are seen partially empty in Tesco this month, as the Ukraine war leads to shortages and surging prices.
Sunflower oil shelves are seen partially empty in Tesco this month, as the Ukraine war leads to shortages and surging prices. Photograph: Finnbarr Webster/Getty Images

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.

UK CPI inflation %y/y change April 2022
Overall 9.0
Goods 12.4
Services 4.7
Food 6.7
Petrol 28.9
Diesel 36.0
Home heating oil 113.9
Electricity 53.5
Gas 95.5
2nd hand cars 27.0
Games & hobbies 19
Garden products 16.2
Sports equipment 11.8
Garden furniture 32.8
Clothing 8.4

— Richard Ramsey (@Ramseconomics) May 18, 2022

Food price inflation at 6.7% y/y its highest rate since May-09 but we can expect double-digit price inflation in coming months. Some food items already there
% y/y
Pasta 10.4
Beef 10.2
Lamb 14.3
Poultry 10.1
Low fat milk 16.1
Margarine 22.7
Butter 12.5
Jams, marmalade, honey 15.6

— Richard Ramsey (@Ramseconomics) May 18, 2022

Other food items CPI % y/y
Bread 4.9
Rice 3.4
Fish 7.9
Eggs 7.5
Fruit 6.2
Potatoes 2.0
Crisps 5.7
Chocolate -0.4
Ice cream 9.1
Coffee 7.6
Tea 3.9
Mineral waters 13.2

— Richard Ramsey (@Ramseconomics) May 18, 2022

Not all prices are rising some are falling (% y/y). 👇
Chocolate -0.4
Fortified wines -0.9
Pregnancy tests & mechanical contraceptive devices 🧐 -1.6
Mobile telephone equipment -8.3
Personal computers -5.7
Software -9.2
Purchase of pets -1.4
Charges by banks & post offices -1.7

— Richard Ramsey (@Ramseconomics) May 18, 2022

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.

Inflation hits 9.0% (CPI) in April up from 7.0%. RPI hits 11.1%, up from 9.0%. CPIH, which noone except Ofwat uses, 7.8% up from 6.2%. Highest rates for forty years. Benefits inc. state pension rose by 3.1% in April, a real cut of 5.4%. Wages rose by 4.3%. Min wage by 6.6%. pic.twitter.com/fVoA1XGjHD

— Paul Lewis (@paullewismoney) May 18, 2022

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.

UK inflation rates by income band
UK inflation rates by income band Photograph: IFS

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

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

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.

Foreign Secretary Liz Truss tells Sky News that BP should use their profits to invest more money in the UK, instead of the Government implementing a windfall tax

For more on this and other news visit https://t.co/NEDMP2uP6W

— Sky News Breaking (@SkyNewsBreak) May 18, 2022

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.

NEW: Inflation has risen to 9% – the highest in 40 years.

A huge worry for families already stretched.

We can’t wait any longer for action from this out of touch government.

Today, Labour force a vote for an Emergency Budget and for a plan for growth.

The Tories must back it.

— Rachel Reeves (@RachelReevesMP) May 18, 2022

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.

Chancellor repeats that he stands “ready to take further action” to support people who are suffering as a result of rampant inflation.

Many in his own party are wondering what he is waiting for.

Treasury clearly intends to do more. By delaying Sunak risks looking out of touch. pic.twitter.com/AMpYBr1j8Q

— Joel Hills (@ITVJoel) May 18, 2022

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.”





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