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
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%.)
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.
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