A focal analysis confirms the tide of inflation going up. Such rates are a reminder of the continuing impact of the cost of living crisis across the UK. Recent figures released from Office for National Statistics (ONS) showed an unanticipated jump in inflation as measured by the consumer prices index (CPI). In June, it jumped 3.6%. This uptick in inflation has been significantly influenced by price hikes across various categories, particularly in furniture, household goods, and air fares.
Rachel Reeves, in her Mansion House speech on Tuesday, emphasized the importance of real wage growth amidst these inflationary pressures. She stated that despite improvements in earnings, the increasing costs of everyday essentials continue to create financial strain for many households.
The increase in inflation is even more indicative of persistent price pressures with broad-based increases across most major goods and services. In particular, the costs of furniture and household items had their biggest impact on inflation since December 2023. Moreover, air fares overall increased by 7.9% from May to June, putting even more pressure on consumers’ wallets.
Food inflation jumped at a 12-month rate of 4.5%. That’s the strongest increase we’ve experienced in nearly 13 months since February of 2022. This increase in food expenses is especially concerning for families who have already been managing with increasingly focused budgets.
Catherine Mann, an acclaimed economist and chief global economist of Citibank, emphasized that the lack of predictability of prices is what’s making consumers more sensitive to spending. Speaking to the Business in Wales website, she called it a difficult time of financial uncertainty for everyone.
“The prices of things have changed so much and are variable so that you don’t know exactly how much you are going to need to get you to the end of the month.” – Catherine Mann
To build on that trend, Mann explained that many Americans are choosing to keep a cushion of savings. This fear-based approach usually results in people putting off non-essential purchases. They put off trips, holidays, special purchases until they are sure they will be ok on their financial footing.
“People are keeping a little bit of a rainy-day fund or a little bit of a savings buffer. For example, they’re putting off taking that vacation or that holiday until they can get a sense of what their finances are.” – Catherine Mann
The year-over-year rate of core inflation rose from 3.5% in May to 3.7% in June. This rate does not include volatile categories such as fuel and food. This indicates that if we exclude the erratic prices of unavoidable goods, inflation is still a serious issue.
Curiously, June saw a 0.5p decrease in petrol prices between May and June. Even though this is a small decrease, it still exerts upward pressure on overall inflation. As a result, last year gas prices were clearly on the decline — a stark difference from where we stand now.
Ian Stewart, chief economist at advisers Deloitte, said inflation is having a ‘significant impact on consumer confidence’. This new reality is radically altering the way people are spending their dollars. The double whammy of rising costs in housing, transportation and other areas means that the cost of living crisis is not over.