Inflation cranks up to 7%: the horrible cost of the bare necessities

CPI inflation surged again to 7% in March – from 6.2% in February. It’s the highest CPI has been since March 1992 – 30 years ago. What this means for pensioners. Notable increases. The rising cost of a dozen essentials. How we’re managing rising costs.

The ONS has released inflation figures for March: Consumer price inflation, UK: March 2022 – Office for National Statistics

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Inflation has cranked up to 7% – the highest in 30 years – and this was even before the full horror of the energy price cap hike kicked in. Most worrying is the fact that so many of the most painful price rises have hit life’s essentials. The bare necessities of heating and eating are absorbing more and more of our income.

“The soaring cost of energy is just one of many pain points, alongside record fuel prices, runaway prices of supermarket staples like margarine and milk, and the highest rise in clothing prices since it was first modelled in 1989.

“Figures out yesterday showed that our wages were already falling behind inflation in February, and as prices surge ahead, millions of people risk being left behind – particularly those in the public sector, construction workers and those in manufacturing. The OBR warned we would see the biggest fall in living standards in a generation, and we can see this starting to unfold.”

What this means for pensioners

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said: “Today’s figures heap further misery on pensioners already struggling to work out how to meet the soaring cost of living. This week’s 3.1% state pension increase is proving no match for inflation which is now running at more than double this amount and there is no sign it is running out of steam. For those pensioners solely, or largely reliant on the state pension they face worrying times especially as the essentials they spend the largest proportion of their income on are rising even faster.

“Even those with other sources of income to draw on are not immune. While those with inflation linked annuities will see an increase in income most annuities are purchased on a level basis and these pensioners will see no increase in income. Even those invested via income drawdown may need to revisit their income plans as inflation bites large chunks out of their purchasing power as investment returns struggle to keep up.”

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown comments on notable increases: “The invasion of Ukraine sent the oil price sky high, which had a massive impact on fuel prices. In fact, March saw the biggest monthly rise in fuel prices on record (since 1990) – of 12.6 pence per litre, and petrol and diesel both hit their highest price on record. A year earlier the average petrol price was 123.7p, but in March it hit 160.2p. It means filling up a 55-litre car in February cost £20.08 more.

“While the conflict in Ukraine also sent the wholesale price of gas soaring to new records, the energy price cap means we won’t feel the pain until October. In the interim, energy price rises were still eye-watering – with gas up 28.3% and electricity 19.2%. This is bad enough, but these are going to feel like the halcyon days when we get the hike in the price cap in April – pushing up prices a horrendous 54%. Anyone heating their house with oil already understands what’s on the way for everyone else, because heating oil is up an incredible 113.9% in a year.

“Food and non-alcoholic drink prices were rising faster again – up 5.9% in a year. Some items on the shelves have risen at an alarming pace, including margarine up a third in a year, mineral water up almost 16%, milk up over 14%, and pasta, ice cream, fruit juice and olive oil all up more than 10%. The pace of these price rises has been gaining momentum since last summer, and is now being felt far more keenly. When we asked people what price rises had hit them over the past three months, food and drink prices were the second most common answer (after energy), with 53% of people saying supermarket price rises had affected them.

“Unfortunately, these price rises aren’t over yet. The conflict in Ukraine has pushed up the price of food globally, but it has also accelerated the rising cost of animal feed and fertiliser, which are feeding through into farm costs. When you add in the cost of fuel for manufacturing and distribution, it will gradually push up prices on the supermarket shelves in the coming months.

“The heat hasn’t come out of the second-hand car market yet, with prices up 31%. Demand is booming, and boosted by people facing long waits for new cars and buying second hand instead. Meanwhile, supplies have been cut by fewer people trading their cars in, and more people extending their leases, so prices continue to climb.

“Clothes and shoes prices were up 9.8%. This is a record high since this was first modelled in 1989. It was driven up particularly by women’s clothing at 11.6%. Part of this is a return to usual seasonal patterns, after clothes were heavily discounted last March as a result of the lockdown. However, part is also the rising cost of manufacturing and transporting clothes, and the supply chain squeeze  – which retailers have been warning was on the way.

“The same supply chain problems hit the cost of household furniture, up 17.2%. This was exacerbated by booming demand too, as we spend our lockdown savings on home renovations and redecoration. Inflation in furniture has never been this high since it was first modelled in 1989.

“Holidaymakers are also facing higher costs, with the price of flights up 15.4% in a year. Airlines have reduced their schedules, so booming demand from people desperate for some sun after two years of restrictions have pushed prices up. Ferries also saw prices surge 18.5%, hitting anyone hoping for a more cost-effective way to travel overseas. And for those staying closer to home in cheaper accommodation there’s bad news too, because the cost of camp sites and holiday centres is up 22.5%.

The rising cost of a dozen essentials

  • Heating oil 113.9%
  • Margarine and vegetable fats 34.8%
  • Diesel 30.7%
  • Petrol 29.5%
  • Gas 28.3%
  • Electricity 19.2%.
  • Oils and fats 18.1%
  • Lamb and goat 16.9%
  • Materials for maintenance and repair 15.6%
  • Low fat milk 14.2%
  • Jams, marmalade and honey 13.8%
  • Articles for babies 11.5%

How we’re cutting costs (Research from a survey of 2,000 people by Opinium for HL in April 2022)

“Around a third of us have found it more difficult to stay on top of our finances over the past few months, and while we’re taking some sensible steps to cut back, a worrying number of people are also being forced to spend their savings or borrow money, so each month they eat further and further into their financial resilience. Meanwhile, for some, the struggle with rising bills is forcing them to make some really horrible decisions.

“When asked how they’ve had to change their habits to cope with rising prices, 37% said they shopped around more, 32% cut back on luxuries and 25% cut them out altogether. However, there were also worrying signs of more desperate measures, with one in four spending their savings, 7% borrowing money from a bank, and 6% borrowing from family and friends. This is a risk because if they haven’t also cut their spending, they could spend all their savings, or run up debts, and still find themselves falling short in the coming months, but with nowhere left to turn.

“Perhaps most worryingly of all,  more than one in five have been forced to cut back on essentials. There’s a real risk that they are having to choose which of their essential bills they can afford to pay and which ones fall into arrears – leaving their finances in really dire straits.

“More than one in 20 people have had to make major lifestyle changes. This can be incredibly difficult, but it can also be very effective. It can include downsizing or moving to a cheaper area, or cutting out things like a car or travel. It means you can cut your costs in one fell swoop, rather than having to make a million tiny cuts. It’s not something everyone can factor into their lives, but shouldn’t be ruled out until you’ve considered it carefully.”