Inflation rate surges to 9% amidst Ukraine crisis
The latest figures from the Office for National Statistics (ONS) released on Wednesday 18 May revealed that the UK Consumer Prices Index (CPI) inflation rate has soared to 9% in the 12 months to April 2022. This continues the worrying pattern of month-on-month increases with another jump from 7% in March, marking the highest rate of inflation in 40 years.
Why does inflation continue to soar?
As mentioned in our December article, a lack of essential workers is playing a significant part to rising inflation by creating supply chain issues. Basic building materials along with essential technological components such as the computer chip are seeing worldwide shortages, driving up the prices of many commodities. This is all against the backdrop of the economic fallout post-pandemic, which has left the economies of many countries crippled.
And now, on top of this, economic ripples from the war in Ukraine are beginning to take hold on the UK markets. The ONS said that the 54% increase in the energy price cap in April played a large part in the jump from 7% in March. This took the average annual gas and electricity bill close to £2,000. With the global energy supply chains disrupted, this figure is expected to grow.
Who will this affect the most?
Rising inflation will directly affect the pounds in all of our pockets. For example, if the price of a bottle milk is £1, and inflation is increasing by 9%, then your bottle of milk will cost you 1.09p or 9p more. Or, in other words, the spending power of the money you have decreases by 9%. Add that rise to your whole shopping basket, your gas and electric bills and so on, and you’ll soon start feeling the pinch.
If you are living in the UK, you will already be feeling the effect of these rises. As the rate of inflation pushes up against the 10% mark, even those previously feeling financially secure may be beginning to worry. The UK now has the highest rate of inflation of any G7 country, with the highest rate recorded since March 1982.
However, the poorest demographic was once again the hardest hit with April figures from the Resolution Foundation revealing that the poorest tenth of households faced an effective inflation rate of 10.2% whilst the richest tenth of households felt only 8.7%.
This disparity is to be expected with such a large contributor to the inflation figures being related to household bills. Just last month, millions of consumers saw a £700-a-year increase in the cost of energy bills, continuing the trend of unprecedented rises to the cost of living.
"There are desperate stories behind these figures," said Dame Clare Moriarty, chief executive of Citizens Advice. "People washing in their kitchen sinks because they can't afford a hot shower; parents skipping meals to feed their kids; disabled people who can't afford to use vital equipment because of soaring energy bills."
High inflation rates are understandably worrying. No matter what your financial situation, everyone is feeling the pinch as inflation figures continue to rise.
For savers, there are no savings accounts that come anywhere near to beating or even matching the current rate of inflation, even after numerous Bank of England rate rises. If you’ve money sitting in cash, especially with the high street banks, it may be time review how much you actually need stored in cash and if that money may well be better placed elsewhere. Try our new inflation calculator to see how inflation is eroding your cash.
We at The Private Office share your concerns and want to do everything we can to help you make the right financial decisions in these uncertain times. If you’d like to find out more, about how we can help you make the most of your wealth, why not request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch.