Inflation continues to soar, cost of living only to worsen

The latest Consumer Price Index continues upward to 6.2%, adding to fears over the increased cost of living.

The latest Consumer Price Index (CPI) was recorded at 6.2% this morning. This means inflation has hit a new 30 year high, which will only exacerbate the cost of living.

“This is the highest CPI 12-month inflation rate in the National Statistic series which began in January 1997, and the highest rate in the historic modelled series since March 1992, when it stood at 7.1%,” the Office for National Statistics (ONS) stated.

The rise can be attributed to a number of diverse contributions. This included a bump in prices for clothing, footwear, toys and other recreational goods, said the ONS.

Other causes of inflation also included increasing energy and prices, according to Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown.

“The perfect storm of massive fuel and energy price rises, accompanied by food price hikes, supply chain problems and booming demand from those with lockdown savings to spend, pushed prices into the stratosphere,” she said.

Despite the effects of Russia's invasion of Ukraine on commodity prices, the recent price increase is more a result of COVID-19 pressures, according to AJ Bell.

“Putting Russia’s invasion of Ukraine aside for the moment, next month’s rise in the energy price cap is massive. Even if the current warm spell continues, just keeping the lights on is going to ratchet up the pressure on household budgets,” said Danni Hewson, Financial Analyst at AJ Bell.

Coles shared a similar view, also agreeing that the rise in prices was determined before the war in Ukraine. She also attributed much of inflation’s increase to the “rocketing” price of fuel.

“A year earlier the average petrol price was 120.2p, but in February it hit 147.6p. It means filling up a 55-litre car in February cost £15.07 more than a year earlier,” she elaborated.

Compared to prices 12 months ago, the change in inflation leaves UK households collectively needing to find an extra £48.2 billion a year to maintain their standard of living, according to Canada Life.

“It’s the duration of high inflation that will continue to deliver bad news. How long inflation remains well above the 2% target will determine our real living standards for years to come,” explained Andrew Tully, Technical Director at Canada Life.

For younger generations, this could be alarming news as they are already experiencing price increases they have never felt before. This is according to Becky O’Connor, Head of Pensions and Savings at interactive investor, who also suggested lifestyle changes may not be enough.

“Lifestyle changes alone aren’t going to cut it when it comes to minimising the pain: going out has become more expensive, staying in has become more expensive, basic foods even in the value ranges, are pricier,” she explained.

Despite three successive base rate increases, savings accounts are not keeping up with the rate of inflation.

“A savings account even at a best-buy rate of around 2% is delivering a negative real rate of return of around 4% at this level of inflation, meaning a £1,000 investment would be worth £960 in a year’s time,” explained O’Connor.

However, there is good news for savers. Rates are already starting to respond to the base rate changes in December, said Rachel Springall, Finance Expert at Moneyfacts, in her article earlier today.

“At present it is the challenger banks and building societies who are competing in the cash savings sector, with notable improvements to the easy access sector in recent weeks,” she said.

As a result, she urged savers to consider these providers as many high street providers seem reluctant to pass on the full rate rises to their customers.