Inflation figures released today show that prices have risen by 2.3 per cent in the past month.
While this means costs are still rising, they are only (only!) doing so by £2.30 in every £100 we spend.
It was £11.10 in every £100 barely 18 months ago. So why do so many people say to me – I don’t feel any better off?
Baked in inflation means we’re not feeling a reduction
A fall in inflation means that prices are rising to just 2.3 per cent in the year to April. This should be good news with the rate down to almost where it was in July 2021. Prices may be rising more slowly now than last month or indeed any month since three Mays ago but in the three years from April 2021 the tenner in your pocket or purse then is now worth just £8.25.
A massive £1.75 has disappeared in price rises. And that is just overall. If we are turning a corner, as the PM and Chancellor have said, the road we are turning into is Baker Street – where those once unthinkable prices like nearly a fiver for a pint of beer in a pub – are baked in for ever.
Bills are up – and staying high
Since April 2021, Office for National Statistics (ONS) figures show food prices are up over 30 per cent. Meanwhile, the energy bill for the typical household is currently £1,690 a year on the regulator Ofgem’s figures, which is £552 or 49 per cent more than the price in April 2021.
It will fall again in July but the announcement is not expected to knock more than £100 off it. ONS says rents paid to private landlords rose by 8.9 per cent in the year to April and now cost an average £1,254 a month across Britain, a rise of £211 or 20 per cent up since April 2021.
These baked-in price rises are for things we have to have – a home, food, warmth and light.
And don’t tell anyone insuring their car or their home that price rises are easing – even the Association of British Insurers says car insurance premiums rose in price by 25 per cent last year and home insurance by 13 per cent. Price comparison sites have said the increases are much higher.
Insurance is one of the items labelled “services” by the ONS boffins who revealed on Wednesday that services overall have risen by 5.9 per cent in the year to April, just a fraction less than the previous figure of 6 per cent and more than double the overall rate of inflation.
Homebuyers continue to face rising bills
Three years ago, the average two-year fixed mortgage was 1.56 per cent. These are now 5.93 per cent across all lenders, according to Moneyfacts.
But even looking at the six biggest lenders, which tend to be cheaper, the average is 5.08 per cent, according to comparison site Uswitch, which adds you will need a 25 per cent deposit (£75,000 on average in England) to hit that rate.
Many have seen their mortgage bill double as they were forced onto a new deal or even the standard variable rate – now standing at an average of 8.65 per cent across all lenders. And Wednesday’s inflation rate offers no relief for homebuyers – it won’t impact house prices.
Core inflation remains high
Economists had expected inflation to fall to 2.1 per cent, with some even saying 1.9 per cent, but very few predicted the 2.3 per cent announced. Those tenths of a per cent matter.
Burrow down into what is called ‘core inflation’ – the underlying rise in prices excluding all the volatile stuff we buy like food and fuel – and those were still rising by 3.9 per cent. It is that detail the Bank of England will look at when it decides whether to cut the Bank Rate at its June meeting. Economists had been 50:50 that it would cut then.
Now they are more like 6:1 it won’t. Even a cut at its August meeting is looking less likely. September? November? Who knows, but predictions earlier this year that 2024 could see six cuts look way out – even the two cuts hoped for recently are certainly not definite.
And even when the Bank Rate does begin to fall from 5.25 per cent, don’t expect a return to 0.1 per cent or even 0.5 per cent, as we have seen in recent years – they were four-hundred-year anomalies. The average bank rate day by day since 1900 is 4.94 per cent and since the bank was founded in 1694 it is 4.63 per cent. Buying a home on a mortgage is going to stay expensive.
Wages rising but not quickly enough for workers
But, says the Chancellor, people are better off as wages are rising ahead of inflation. Annual growth in wages reported earlier this month was 6 per cent on the year. People on the various minimum wages saw their pay increase by 10 per cent or more in April.
But in the past three years the ONS says average wages without bonuses are up by 18.6 per cent, less than the 21.3 per cent at which prices have grown over that time.
So it is no surprise that people are not feeling better off. Prices are still rising and if their wages are now rising faster they are just playing catch up on the times when even the government admitted people were getting poorer. We are worse off, not better off, in the past three years – or should I say over the past three prime ministers and four chancellors.
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