Inflation is going to hurt - The increase in state pension and other benefits in April was 3.1%, but inflation was 9%

Here’s what changes in the economy mean for you, says Paul Lewis

Published: June 8, 2022 at 3:27 pm

Prices rose almost three times as fast in April as the increase in the state pension and other benefits. For those who rely on them, that is a cut in their income of about 5p in the pound. (The increase in state pension and other benefits in April was 3.1%, but inflation was 9%. The cut in living standards is 5.4%.)

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In fact it is probably worse than that. The official Consumer Prices Index (CPI), which is used to measure inflation, is biased towards the spending of better-off households. That’s partly because they spend more, but also because they spend more widely – the index includes, for example, the cost of indoor rock-climbing lessons and pet collars. The Institute for Fiscal Studies estimates the true rate of inflation for the lowest income households, including many pensioners, was 10.9% in the year to April because they spend a much bigger proportion of their income on life’s essentials – electricity and gas, which have shot up, and food, which is rising sharply. They cannot choose to cut back on non-essentials as richer households can.

The State Pension should have gone up by more under the Government’s promise of the Triple Lock – increasing it by earnings or prices, whichever was greater. But the Government said earnings had risen much too fast – 8.3% in a year – due to the “unprecedented circumstances of the pandemic” and chose to increase the pension by much less.

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This high rate of inflation is predicted to continue. The Bank of England has said it would go above 10% by the end of the year. And there will be a further increase in the price of gas and electricity in October, which the Bank reckons will push the typical annual bill to £2,800. That would use up a third of the average state pension and two thirds of the Universal Credit paid to a single adult over 25 who is looking for work or who has limited capability for work.

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Tough times ahead – although the Chancellor has just announced more help with fuel bills. Full details next week.

Paul Lewis presents Money Box on Radio 4. QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com

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