Investment expert on the high annual inflation rate
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Today’s inflation figures are much higher than those of the previous month, 3.1 percent. The figures reach a level not seen since 2011. The Bank of England predicts further increases to come with a forecast next year of five percent. Reacting to the latest increase, Ms Reeves said: “From the energy price cap going up, increased VAT for hospitality businesses, used car and clothing costing more, fuel prices hitting another record high and rents rising at their fastest rate in 13 years – the list of price crunches linked to this inflation rise goes on and on.” Analysis by the Institute for Fiscal Studies (IFS) has shown someone with a salary of £30,000 this year would have to see their wages rise by 7.1 percent next year to maintain the same standard of living.
Heidi Karjalainen, research economist at the IFS, said: “Combined with the effects of recent tax increases, this means that nominal wages will have to continue to increase at a rapid pace in order for households to maintain their living standards.
“Increases in the cost of gas and electricity bills disproportionately affect the lowest income households, while rising prices in hospitality and vehicle fuel mostly affect those in the top half of the income distribution.
“There may be more troubles in store for low-income households in the spring, as gas prices are expected to increase further in the months ahead.”
The IFS’s analysis also found inflation occurring in other areas likely to hit households hard, such as transport prices rising 9.9 percent and a 6.3 percent rise for hospitality driven by more expensive restaurant meals and hotel stays.
Of the selection of rising prices, soaring gas bills are expected to take one of the biggest tolls, particularly for lower income households – with some spending as much as 12 percent of their budget on gas.
Another key area is food, which has been hit by supply chain issues and shortages.
Laura Suter, head of personal finance at AJ Bell, said: “The biggest price rise of all food items is fruit drink bottles, so things like Fruit Shoots, which are a staple in many parents’ weekly shop.
“A pack of them has risen 32 percent this year.
“The other biggest risers are a pack of yogurts, which is up 19 percent, and low-fat spread, which has risen 18 percent.
“It’s going to cost more to make a spag bol now, as tinned tomatoes have risen in price by 17 percent.”
The debt charity StepChange has warned growing pressures on costs of living could lead to more people taking out loans to try to make ends meet.
Speaking to Express.co.uk, Peter Tutton, StepChange head of policy, warned rising fuel costs would “wipe out” measures designed to help vulnerable households such as the Warm Home Discount.
He described the situation as “all the ingredients of a more severe debt problem building over the year.”
Even for those able to put some money aside, savings will increasingly lose value in real terms.
Sarah Pennells, consumer finance specialist at Royal London, said: “The best buy easy access accounts are currently paying less than one percent.
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“Even the best buy five-year fixed rate bonds only pay around two percent.”
Ms Pennells also highlighted the impact for pensioners, pointing out the “big gap” between today’s inflation figures and the 3.1 percent September figure used to calculate next year’s increase.
The situation will plce greater pressure on the Bank of England to raise interest rates following a surprise decision this month to hold them at 0.1 percent.
Speaking to Express.co.uk, Andrew Sentance, former Bank of England rate setter, said he expected to see interest rates rise as much as one to two percent next year.
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