How inflation has driven the UK’s cost of living crisis

The Office for National Statistics will release its April inflation statistics on Wednesday. It is expected that the data will show prices rising at their lowest rate since summer of 2021.

For economists a rate of inflation of around 2% is significant. It marks a long overdue return to the Bank of England target. The consumer will still see prices rise, but they won’t be as steep as in the past. Inflation has been at its highest in 40 years. The equivalent of 11 years’ normal inflation of 2% was jumped by 22% within three years. Real wages have fallen by 2.3% in the last two years, which makes it difficult for many people to pay their energy bills or buy groceries.

Not everyone has been affected equally by the price increases. And not all products and services are equally affected. We examine the price increases of some notable items since UK inflation last reached 2% in July 2021. Also, we compare UK prices with other countries.

The Consumer Price Index (CPI), which measures the change in price of a basket, includes everything from second-hand cars to socks. Since July 2021 the food items have been the ones that have seen the highest price increases.

One kilo of plums, which was previously priced at £2.36 has now increased to £3.63, a 53.9% increase. A cucumber’s price has increased by 72.2% from 54p up to 93p and the price of sugar granules from 69p to £1.20, a 72.5% increase.

Olive oil has seen the steepest rise. A litre will cost 120% more than in July 2021. The price went from £3.65 up to £8.04. This is partly due to climate change. In 2023, olive growers in the Mediterranean experienced the hottest summer ever recorded. This affected crop yields.

Food has driven inflation in all categories. Food prices have increased by a third compared to overall prices. Food costs have risen by a third more than overall prices, and again, households with lower incomes are the hardest hit, since a larger proportion of their income goes towards food. Trussell Trust is a foodbank that delivered over 3m emergency packages in 2022-23. This was an increase of 50% from 2019-20. Some people simply eat less as a result. According to Resolution Foundation, real food consumption has dropped by 7% in the first three-months of 2021.

The Resolution Foundation reported that the overall price of food has risen by 31 percent since March 2021. This compares to a 90 percent increase in the cost of electricity, gasoline, and other fuels.

CPI inflation includes the price changes of a wide range of services from cremation services to driving lessons, nursery school fees, and manicures.

The cost of going out has been a major concern in the UK. The cost of a night at a hotel has increased from £87.97 to £114.63. This marks the end of cheap nights out. Meanwhile, an adult ticket to a theatre has risen from £28.85 up to £38.24, indicating hefty increases in both areas. The price of a cigarette has increased dramatically. 30g hand-rolled tobacco costs £18.27 compared to £11.88. This is a 39.1% increase.

The cost of home improvements has also increased. For example, potting compost is now priced at £18.27 (up 53.8%).

Since the cost-of-living crisis began to ease, households increased their spending on holidays and eating out. According to the Resolution Foundation, since the first quarter of 2023, spending by households on air fares and hospitality has increased by 1.1%.

In order to offset this spending, it appears that households are delaying the purchase of higher-priced or luxury items in their homes such as appliances. Researchers found that real-term spending on household appliances dropped 18% between 2022’s first quarter and 2023’s final quarter.

Energy has been the biggest factor in the rise of spending. The wholesale price of electricity was 10 times higher in winter 2022 than in 2021. Energy price caps in the UK set the amount that consumers pay for gas and electricity. The cap was implemented by the regulator in 2019.

The summer of 2021 saw the cap on energy prices set at £1,084 for direct debit payers and £1,128 for prepayment meters. By spring 2024 the cap was £1,690 per year for those who pay by direct debit and £1,643 for those on prepayment meters, representing a 56% increase and a 45.7% increase, respectively.

According to , the International Montetary Fund, British households performed particularly poorly compared to those in other European nations because of their high dependence on natural gas. Gas is used in the UK to produce 40% of its electricity, and to heat up 85% of UK households.

The spike in energy costs was most painful for the poorest households. According to the Resolution Foundation, households with the lowest incomes spent about 50% more on food and energy than those with the highest incomes.

Fuel poverty is defined as households spending more than 10% after housing costs on energy. In 2023 more than a third (36.4%) of households exceeded this threshold, compared to 27.4% in 2020.

Although headline inflation has declined, household energy costs are expected to remain about 40% higher than before the Russian invasion of Ukraine and at least until the end 2024.

The UK has the highest inflation rate of all the G7 countries, and is higher than any other country except for Iceland and Sweden on a list that includes 23 wealthy nations for which OECD provides comparable data.

This is due in part to the UK’s dependence on imported food. The UK imports half of its food. After Brexit, the price of food may fluctuate due to higher transportation costs or any additional fees. UK supermarkets are also bound to longer-term contracts. This means that some customers have had to pay higher prices, while European supermarkets passed on lower deals.

Gas is a major source of energy in the UK, which makes it more vulnerable to price increases. Analysts say the energy price cap can create an

In Germany, the inflation rate was 2,4% in April compared to 2.3% in March. Meanwhile, in France, it was unchanged at 2.4%. The UK CPI would be one of the lowest rates in Europe if it dropped to less than 2% in April.

Few analysts believe that the fall in inflation will directly affect household budgets. According to the Office for Budget Responsibility, GDP will be 2% lower than expected by the end next year, which is the equivalent of £1,900 per household.

The Bank of England may have achieved its inflation target but most UK households are still likely to experience lower living standards until the recent price increases are matched by higher incomes.