For some time now the media have been reporting on a cost-of-living crisis facing most, if not all British residents. This followed a number of shocks to the system. The Russian invasion of Ukraine, one of the largest food exporters in Europe, caused food shortages and significant increases in prices. Oil prices also rose sharply which affects all parts of the economy, not just motorists. The Bank of England, after sitting on its hands for too long and after saying in 2021 that the increase in inflation was temporary, finally started increasing its base rate on an almost monthly basis which had an immediate effect on home-owners whose mortgage rates were not fixed.
The Office for National Statistics (ONS), which has the responsibility of assessing and publishing changes in consumer prices, in its latest report said the following:
“The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 6.3% in the 12 months to August 2023, down from 6.4% in July, and down from a recent peak of 9.6% in October 2022. Our indicative modelled consunmer price inflation estimatrs suggest that the October 2022 rate was the highest in over 40 years (the CPIH National Statistic series begins in January 2006). The rate in August 2023 was the lowest since March 2022.
The slight easing in the annual rate between July and August 2023 was a result of prices rising by 0.4% on the month compared with a rise of 0.5% a year earlier.
The Consumer Prices Index (CPI) rose by 6.7% in the 12 months to August 2023, down from 6.8% in July, and down from a recent peak of 11.1% in October 2022. Our indicative modelled consumer price inflation estimates suggest that the October 2022 peak was the highest annual inflation rate since 1981 (the CPI National Statistic series begins in January 1997). The rate in August 2023 was the lowest since February 2022.
The easing in the CPI annual rate between July and August 2023 was a result of prices rising by 0.3% on the month compared with a rise of 0.5% a year earlier.”
This statement is reported by most commentators as saying that the rate of inflation is coming down. The Prime Minister has made it one of his five pledges that it would halve by the end of the year. But I wish to make two points here. Firstly, if the rate of inflation was 10% in 2022 and is 6% in 2023 it’s still 16.6% across the two year period and few people will have had that kind of increase in their income. True the State pension has increased by the rate of inflation because of the Triple Lock. Well, I get the state pension but my wife and I could not live on it.
Secondly, I don’t believe the numbers. I think the rate of inflation has been much higher. Here’s a few examples of what I mean. According to the ONS the CIPH 12-month rate in August 2023 for food and non-alcoholic beverages was 14.9%. I keep detailed household accounts and have done so for over 40 years. In August this year our food bill was more than 20% higher than the same month last year and our tastes and habits have not changed. Transport according to the ONS was 2.1% less than August 2022. My main transport costs are taxis to my local station and then trains into London. The normal taxi fare was £5 a year ago – Yesterday it was £9.45. The off-peak train fare was less than £15. It’s now £19.05. So, a year ago my wife and I could travel into London for £40 return. It’s now £57, an increase of 43%.
Communication increases were 7.0% according to the ONS but all the Phone companies, both fixed wire and mobile, have sharply put up their rates. All goods and services were up by 6.4% according to the ONS. Our car insurance went up by 50% and we’.ve never made a claim. Our household insurance went up by even more. Restaurants and hotels are officially up by 9.6%. Dinner at our local pub has gone up by 30%. The Livery dinners I attend in the City were usually about £100-£110 per person. I’m going to one next week that is £140 and I have another one soon that is £150. Recreation and culture are up officially by 6.8%. We’ve virtually stopped going to the West End theatres as ticket prices that were £100 or so two years ago are now £150 or more.
Having given a few examples of how my own expenses have increased very much more than the official published rates, I can at least afford it even though I find it upsetting. But think of those people on limited incomes. While grocery price inflation in the UK fell for a few months in a row, the cost of food items remains much higher than before, pressuring families to make tough choices. According to research conducted by StepChange, one in seven people had recently skipped meals or were forced to buy cheaper unhealthy food in order to keep up with credit payments. This figure rose to one in three for those on Universal Credit. An article in the Financial Times reported on a school in Oldham, one of the poorest towns in the country, where the headmaster had noticed that many of the children had no money for lunch and were asking the dinner ladies if there were any left overs they could have.
So, what do I think is going on? Firstly, the Bank of England has failed to meet its target of 2% inflation over the past few years after running the Quantitative Easing experiment for far too long and flooding the market with excess cash. This leads to inflation as we have always known, and it will take a long time to get it back under control. Secondly inflation is not accurately measured and many new practices by profiteering firms are ignored. Over the past two years, rather than putting up prices, many food manufacturers have decreased the size of their products or reduced the number offered. Unilever reduced the pack size of its popular Magnum ice cream bar from four to three but charged the same price. Another practice that is ignored by the ONS is the astronomical rise in dynamic pricing. This happens with hotel room rates, concert tickets, drinks prices in bars and even the price we pay to park. Drinkers are being charged 20p more for a pint during the busiest times like when a major sporting event is being shown.
We have long experienced this variability in pricing for airfares but at least then there is a limited number of seats and it makes good commercial sense for the carrier to operate algorithms to maximise occupancy rates. James Daley, the founder of Fairer Finance, a consumer group, was recently quoted as saying “We will end up in a situation where the price of items on the menu is changing in the time you are there. That’s simply not fair and needs regulation.”