Nowhere to hide for consumers as inflation hits 9%

Household budgets are crumbling under the pressure of spiralling inflation.

• The Consumer Prices Index (CPI) rose by 9.0% in the 12 months to April 2022, up from 7.0% in March.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Inflation has surged by an eye-watering 9% in the year through April – it’s highest levels in more than 40 years.

The latest jump in inflation also marks seven straight months of prices rising at a pace not seen since in a generation and nine months of inflation rising faster than the Bank of England’s 2% target.

“Household budgets are crumbling under the pressure of spiralling inflation, driving many to breaking point. There is nowhere to hide for consumers as inflation has been most acute on unavoidable household costs like food, energy, housing and transportation.

“Runaway inflation means that many households are being forced to make tough decisions on their spending on a daily basis. Charities have reported that an increasing number of people are taking drastic steps, like forgoing meals, just to stay financially afloat. With the cost-of-living storm set to rage on for months to come, the situation appears desperately bleak for many households - and Russia’s devastating invasion of Ukraine could yet deepen the cost-of-living crisis.

“It is worth remembering that inflation doesn’t impact all consumers equally as we don’t all spend money on the same things.  We all have a personal inflation number that is unique to us and could be far higher than the catch-all headline figure. Escalating inflation means that we are all spending more on the same things. Keep tabs on your spending to get a better ideas of how exposed your back pocket is to inflation is crucial.”

Myron Jobson outlines steps to mitigate the worst of the impact from the rising cost in living.

1. Make small changes to your budget across all categories

“Instead of making swingeing cuts to a couple of areas of expenditure, making smaller cuts across a broader range of spending can be a more palatable way of cutting costs. For example, you don’t have to completely forgo your daily coffee purchase, but you can cut back on how often you buy them.”

2. Save on food bills

“Shop around for the best deals – especially for high ticket items. Even simple things such as opting to purchase a store brand equivalent of traditional larder products can help to cut down the cost of groceries. If you’re anything like me and find it impossible to distinguish between store brand and premium brand rice, opting for the cheaper version can help save on cost, without compromising on flavour.

“Consider buying items in bulk so you are not constantly spending as prices continue to climb. It is also worth taking advantage of supermarket loyalty schemes - such as Tesco Clubcard and Nectar card – which can give you access to unlock big discounts and other exclusive rewards.”

3. Savings

“Ballooning inflation underpinned by increases in the cost of energy, food and fuel has resulted in the biggest decline in living standards since the 1950s. For those trying to catch up on savings, high inflation is a blocker, because rising prices leave less to spend on other things.

“Those who became accidental savers during pandemic, by keeping jobs while facing fewer outgoings during the Covid lockdown, may need to use some of the cash to tide them over during the cost-of-living crisis.

“Savers considering locking their cash into a fixed rate fixed term deal for a better rate of interest should consider whether they’d need to access some of that cash if the cost of living continues to grow. While the high rate of inflation means that most people’s savings are effectively losing value, it still pays to shop around for the best deal.”

4. Work out your inflation number

“If you don’t use a budget to manage your spending, it’s difficult to know where you stand. Everyone has their own inflation number – it’s worth keeping a spreadsheet of your own spending habits so you can get a better idea of the goods and services that are eating most into your budget, and where you could cut back. If you don’t have a budget, now is a good time to start one.