Inflation warning as Britons set to pay extra £229 monthly if measure hits 11 percent

Woolwich residents talk about the impact of cost of living

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Inflation has been rising rapidly over the last 12 months, in June 2021 inflation was recorded as being at 2.5 percent. Since then, the level of inflation has risen by seven percent to 9.4 percent in July of this year. An inflationary environment generally means that people will still have the same amount of money to spend but it doesn’t go as far because everything is more expensive and this affects their purchasing power.

According to an analysis of official Office National Statistics (ONS) figures by personal finance expert at James Andrews, the rising inflation has caused a person’s average monthly spending to be an estimated £196 more compared to last year.

Mr Andrews explained that half of this amount is attributed to gas and electricity, petrol and food.

According to Mr Andrew’s analysis, on average Britons are paying around £89 a month more on energy bills, £5.35 a month extra on petrol and an extra £3.29 per month on food.

There are different types of inflation and the most common ones are “demand-pull” and “cost-push” and “built in”.

Demand pull is when there is more demand for goods than supply and this is seen as a “healthier” type as it is usually caused by higher employment and wages.

Cost-push, meanwhile, occurs when the cost of making goods increases and companies have to raise their prices in order to cover the shortfall. However, this can obviously put a strain on the consumer.

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Built in when expectations of future inflation actually end up causing inflation itself. If prices are rising, workers will demand higher wages to help the costs which in turn causes production costs to rise and can lead to prices going up even more.

Mr Andrews told “The increase we are seeing is being driven by a few things that are all spilling over into each other but the main driving factor is energy.

“Due to the Russia and Ukraine conflict the price for petrol, electricity and gas has been pushed up and because it is a global issue, we don’t have control of this. As Russia is a huge petrol supplier it is more expensive to get the petrol out of the country and it is costing the same to extract the gas but it is now selling for so much more.”

Mr Andrews explained that as the cost of energy has increased, this has a “knock-on effect” on everything else with food being an “obvious” example of this knock-on effect.

He continued: “You need energy to grow grain, you need petrol to harvest the grain, you then need petrol to get the grain from the field to the bakeries. You then need even more fuel to take it from the bakery to the supermarket.

“I should then add that obviously, supermarkets need to have the lights on and it needs to keep its chilled aisles cool, so that again pushes up prices for supermarkets because their energy bills are up too.”

Mr Andrews highlighted that the after-effects of the COVID-19 pandemic have also played a role in pushing rising inflation.

This is because the demand for petrol had done down during the pandemic as people were not travelling around as much and as a response to this companies then slowed down their production as they did not want to be spending money “unnecessarily” when the demand was not there.

Mr Andrews said: “Then we opened back up and in the big picture we opened up all at once, and that meant the entire supply chain has not ready and it has taken time to get it running to a somewhat normal rate, however, we’re are still not there yet.”

Mr Andrews stated that as soon as the world’s machinery, factories, and refineries are back to a “normal working capacity” then people may see the rate of inflation start to reduce again.

He explained: “At the moment, we’re in this almost perfect storm of everything’s harder to get hold off, which means prices go up. And everyone’s scared about energy, which means prices are going up. And that’s all hitting at exactly the same time.”

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Mr Andrews stated that as the UK is unable to control the cost of energy, then the only thing it can do is to protect the value of the Great British Pound.

The first thing the UK can do is to “prevent the pound from crashing” which is the reason why the Bank of England (BoE) is raising interest rates.

He said: “If nothing is done and people lose confidence in the pound, then it crashes. Then even if global energy prices began to fall, because the pound was weaker, our prices would not drop.”

Mr Andrews highlighted that the UK Government was also concerned about the effects of increasing wages in line with inflation as this could cause inflation to also increase even further.

He added: “If wages are increased in line with inflation that’s fine for now. However, next year when the global supply chain returns to normal and if the Russia and Ukraine conflict dies down then the inflation that we are seeing will slow down and reduce.

“If the prices for gas, electricity, petrol and food drop but our pay rise from the last year is still in force we can then actually cause inflation to get worse.”

Mr Andrews stated that the “best scenario” would be for the Russia and Ukraine conflict to end and for energy prices to be given the chance to stable themselves and reduce back to what the world see’s as a “normal level” which will then have a “positive knock-on effect” on other costs.

He explained: “This will not last forever, and inflation will drop again and in this instance, it will be energy driving it down the question is when will start to drop.”

“It won’t be bad when it does drop as this inflation is simply because we need to eat, get to work and heat our homes so when it does reduce back to a normal level, then we will eventually have more disposable income in our pockets which we can then spend on fun.”

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