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Inflation at its highest rate in 30 years: How have we got to this situation and what can be done?




Gavin Simpson, who was born and brought up in Bishop's Stortford, and Pete Clift host the award-winning podcast Economics in Ten. Here they delve a little deeper into the economic situation that is impacting us all...

Have you been wondering what’s been going on with prices recently? Filling up a tank of petrol seems to have gone to eye-watering levels and your smart meter will be showing a price that would have been unimaginable a few months ago. So what’s going on and what can be done about it?

When governments talk about the ‘cost of living’ they are often referencing the inflation rate and how it relates to people’s incomes. In the UK, inflation has reached 5.4%, the highest it has been for nearly 30 years – and it is expected to go even higher.

Inflation is measured by finding out the price of a basket of 700 goods and services and comparing it to the year before
Inflation is measured by finding out the price of a basket of 700 goods and services and comparing it to the year before

Inflation is measured by finding out the price of a basket of 700 goods and services and comparing it to the year before. Each year this basket gets updated through a family expenditure survey so that it remains relevant to the current times. For example, last year, hand hygiene gel and men’s loungewear were added as more people were using them in the time of Covid. As technology changes, new products like electric cars and smart watches are introduced. It’s not just goods though, as new services will be added whilst others get taken away. Each item is weighted as well within the basket of goods, as a rise in price for something like petrol will be more impactful on a household than the price of a smoothie.

This all means that compared to last year, the average person in the UK is paying 5.4% more for their goods and services. This doesn’t really matter if your income goes up at the same level, but for most people this will not be the case, especially those who are on benefits, have a weak bargaining position at work or rely on their savings.

Remember also that inflation is an average, therefore some people will be more impacted than others, and over the last week, former food bank user Jack Monroe, the budget recipe book author and anti-poverty campaigner, has been highlighting how the poorest in society are feeling the squeeze more than anyone else.

Former food bank user, campaigner against poverty and inequality, and budget recipe book author Jack Monroe outside 10 Downing Street
Former food bank user, campaigner against poverty and inequality, and budget recipe book author Jack Monroe outside 10 Downing Street

So how has it got to this and what can be done?

Covid, Brexit and climate change have all impacted supply chains, which means the cost of production across many industries has risen enormously and this eventually gets filtered through into pricing. As the world rebounds from lockdowns, demand has surged for products and this also puts upward pressure on price.

On the energy front, cold winters across Europe and a lack of wind and sun to power renewables have meant a shortage in the UK, and despite the Government price cap, this has seen a large rise in prices.

Many also argue that a lack of competition in some markets has led to profiteering by some companies. This can be seen in the petrol market, where the AA believes the price should be at least 3p lower than it is, but as with most markets, prices go up fast but are pretty sticky when coming down.

Despite the Government price cap, there has been a large rise in prices
Despite the Government price cap, there has been a large rise in prices

The normal way to deal with rising prices in the UK is to increase interest rates. The Bank of England has been set a target inflation rate of 2% (plus or minus 1%) by the Government, and as inflation is well above the target, many pundits have suggested it needs to increase the interest rate from the current 0.25%.

The problem is that most of the upward pressure on prices is supply side-related and interest rates dampen demand, therefore it is not dealing with the core issues. Also, when interest rates rise, the way it dampens demand is to make it more expensive to borrow or you may have to pay more back on existing loans, and this means there will be less spending in the economy. For many families that are on the edge of poverty, any increase in the interest rate could tip them over and, in the short term, could raise the cost of living even more.

Gavin Simpson, left, and Pete Clift (54577447)
Gavin Simpson, left, and Pete Clift (54577447)

Whatever the decision will be, the cost of living will continue to rise as the year progresses – so, from a personal point of view, what can you do about it?

It’s difficult with something like energy, but with most things, it’s important you shop around and find the best deals suitable for you. Use price comparison sites and think strategically when shopping. If there's a bargain to be had, try to buy in bulk and store it.

Post-Christmas is a great time as a lot of shops are trying to get rid of their festive stock. For example, we picked up packets of Christmas pasta – pasta in Christmas shapes – for 10p in Sainsbury's. The 'best before' was 2023, so it made sense to buy lots to protect us from rising prices.

If you have any good cost of living tips to share with Stortford Indie readers, then we’ll be delighted to see them. As you often hear in political circles, we are all in this together.

* Gavin and Pete's podcast Economics in Ten recently came second in the Independent Podcast of the Year poll in the PodBible Awards for 2021 and two years ago it won the award. It can be found on any podcasting website at https://podcasts.apple.com/gb/podcast/economics-in-ten/id1450116373.

Gavin, who lives in Knebworth, was born and bred in Bishop's Stortford, attended The Bishop's Stortford High School and his mother still lives in the town. Through their Economics Ten podcast, he and Pete, who lives in Stanstead Abbotts, sponsor a player at Bishop's Stortford FC.

Economics in Ten (54577445)
Economics in Ten (54577445)


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