Inflation hit another record in February, piling the pressure on the chancellor to address the soaring cost of living in his spring statement later today (March 23).
The consumer prices index rose 6.2 per cent in the 12 months to February this year, an increase from the 5.5 per cent jump in January, according to the Office for National Statistics.
The bump in prices has been driven by the increasing cost of energy and transport, and the jump last month was specifically driven by rises in the price of games, toys, clothing and footwear.
The rise will pile more pressure on chancellor Rishi Sunak to combat the cost of living crisis, which has been exacerbated in the past month due to the Russian invasion of Ukraine.
Source: ONS
Cost of living
Steven Cameron, pensions director at Aegon, said the rise was “as feared”.
He said: “Those on fixed incomes will have seen their purchasing power fall by 6.2 per cent over the last 12 months which is particularly worrying for those just getting by.”
State pensions are due to rise by 3.1 per cent in April, exactly half current inflation levels, which will leave many “severely stretched”, Cameron said.
“It’s clear that lower income households and pensioners are disproportionately affected by inflation rates higher than seen for 30 years.
“That’s why it’s crucial that in future, as planned, inflation data is refined to show the effect on different household categories.”
Martin Lawrence, director of investments at Wesleyan, said every percentage point that inflation climbs means more pressure on people’s pockets, and some individuals’ finances will have already passed breaking point.
“The current rate of inflation is one that an entire generation has never experienced before,” he said, adding that all eyes will be on the chancellor today to see what he’s going to do.
“Anything short of immediate relief will fall short with the thousands already struggling, or simply unable, to make ends meet.”
Savings rates
The Bank of England has now missed its 2 per cent target inflation rate since May last year, and last week it increased interest rates to 0.75 per cent in an attempt to curb rising prices.
Becky O’Connor, head of pensions and savings at Interactive Investor, said these rate rises have not yet brought savings rates above inflation.
A savings account even at a best-buy rate of around 2 per cent is delivering a negative real rate of return of around 4 per cent at this level of inflation, she said, meaning a £1,000 investment would be worth £960 in a year’s time.
“Investing gives people a chance of beating inflation through growth, but with stock markets looking volatile and the geopolitical landscape being so fragile, it can be hard to find the right investments to deliver that growth and the risk of losing even more this way is another factor to consider.”
sally.hickey@ft.com
