The dilemma caused by rising living expenses seems to have lasted forever. Although the pace of inflation is gradually decreasing, consumers continue to experience price increases that are unprecedented in recent times while their earnings have been stagnant. They are now battling with debt and making sacrifices on necessities as a result. So, when will the problem of rising costs of living cease and prices start to decline? Although the pace of inflation has decreased, prices continue to soar at a rapid pace and you will probably feel the squeeze. How does inflation affect you personally? Will prices ever decrease? This article provides all the information to determine whether the cost-of-living dilemma will ever be resolved.
In a technical sense, the concept of “inflation” refers to the pace of price growth. However, what exactly does it mean and in what manner does it affect your life? Since inflation has remained high for, well, for an extended period at this point, you may have observed that the price of a bag of bananas or even a pack of toilet paper is still rising as your household expenses continue to climb. Your bills will rise more quickly as inflation rises. With a price increase of 6.7% in the month of August 2023, prices have, on average, increased by 6.7% from August 2022. This is less than the inflation rate of 6.8% in July. However, this does not indicate that price growth has ceased. Prices are still rising and will keep doing so as long as there is an upsurge in inflation.
Will There be a Dip in Prices in the UK?
The answer would be that UK prices won’t likely ever go down, and quite certainly not by much. However, the wages are expected to stay up with price increases to prevent consumers from feeling the pinch. In order for prices to decrease in the UK, inflation would have to drop below zero, a
condition known as deflation. That is unusual. The last time this occurred was in the year 2015 when prices dropped suddenly due to a decline in the price of oil and ended up falling by a total of 0.1%. Prior to that, during the world’s financial crisis in 2009, just one indicator of prices was negative, buteconomists dispute the specifics.
Eventually, the cost of living in the UK will tend to decline. Real wages will gradually catch up with prices as they stabilise and expand more slowly; progress has already been made in this direction.This summer, increases in wages caught up with rising prices for the first time in two years. From May through July, pay, excluding bonuses, grew 7.8% on average more than it had a year earlier. This was consistent with the rate of inflation throughout that time.
For the millions of families that have reached their limit of affordability amidst the cost of living crisis, there won’t be a significant influx to their bank accounts because not all the workers have received a raise in their wages to meet inflation – it’s an average throughout the economy. Many people may actually be in worse shape than they think for a variety of reasons. More than 200,000 jobs were cut off during May and July, businesses suffered losses due to rising lending rates, and unemployment has increased. People are in debt as a result of their inability to handle rising prices; households in Britain currently have a whopping £22 billion in uncovered essential bills, including electricity, council tax, welfare, and tax credit overpayments.
In the first half of 2023, nearly eight million individuals utilised borrowings to cover their energy bills, and according to Citizens Advice, it is already assisting a record number of people who are in debt for their energy.
According to its forecast, this year’s end would see 26% more people in dire need of assistance with energy debt than it did in 2022. Mortgage payments have increased as a result of interest rates. Rents have gone up as a result, according to landlords. Housing costs are rising for a lot of people. Food expenses are another factor. Increased by 13.7% till August, which is significantly faster than wage growth.
Is the cost of living crisis nearing its end?
Once prices have stabilised and salaries have increased sufficiently to keep up, the cost of living crisis will be over. The cost of living issue “appears to be nearing its end” with the record increase in pay growth this summer and the slowing of inflation. The ” damage has already been caused,” experts caution. Household disposable income is anticipated to decline by 5.7% between 2022 and 2024 after accounting for inflation.
Since records have been kept in the middle of the 1950s, that is the biggest two-year decline. Furthermore, since these forecasts were made in March when expectations for the rate of inflation were quite optimistic, it is possible that the actual results will be worse. The next one is scheduled to correspond with the next autumn budget. The OBR issues its forecasts twice a year.
While inflation is still high at 6.7%, the real harm has already been done.
The prices of necessary goods and services have risen to a point where they are figuratively out of reach for 7.3 million households with low incomes. The rate of price increases is now irrelevant to people who already skip meals and go without hot water. However, by the end of the year, inflation is expected to be about 5%, continuing to decline below 3% in the first half of 2025, according to the Bank of England.This is because the recent sharp decline in petrol prices should result in lower energy costs.
Inflation should be held down by higher interest rates.
It won’t be until 2027 that real wages relative to prices are anticipated to reach 2021 levels. Even in 2027–2028, real household incomes are predicted to be lower than they were before the pandemic. Therefore, there is still much to be done. Between May and July, wages increased at a record annual rate, keeping up with inflation. Stronger wages, however, lead to worries that price increases won’t subside as quickly, with the Bank of England more likely to increase interest rates once more.
It’s also critical to take into account who is receiving pay increases: according to The Equality Trust, in July, those employed in the banking industry had average real pay increases of 7.6%, while those in the education sector experienced a 2.6% pay decrease.
Will energy costs decrease?
The average annual energy consumption bill is anticipated to decrease to £1,923 starting in October due to the recent energy price cap that Ofgem announced. However, experts caution that prices remain “dangerously hefty” despite a slight decrease in what individuals will pay for electricity and gas. Energy prices are no longer guaranteed by the government, and bills are finally under £2,500. The recent energy price cap does not imply that everyone will pay a maximum of £2,053; rather, it represents the amount each household will spend depending on its typical energy usage.
You might pay extra if your household consumes more energy than what is typical.
A reduction in family energy bills offered by the government’s energy rebate programme expired in March. Many people have found salvation in this, saving about £66 each month. People might not see the benefits of lower energy prices if this assistance ends.
Customers will experience cold chills as a result of the most recent price cap. People must now endure several more months of stubbornly high bills.
As the cost of living crisis worsens, they will continue to deplete their savings, rack up credit card debt, incur energy company debt, or resort to food banks.
Are costs increasing uniformly across the board?
Regrettably, no. Poorer households’ prices are increasing even more quickly. This is due to the fact that the prices of necessities are rising more quickly and low-income families often spend a larger percentage of their income on such items. Prices for food and non-alcoholic beverages increased by 13.6% through the year till July, declining from the month before but still persistently high. According to research by the Resolution Foundation, poorer families are more adversely impacted by rising food prices since they spend a larger percentage of their incomes on food.
To protect the living standards of individuals with the lowest incomes, the government ought to be doing a lot more. Following the current laws and enhancing benefits at a minimum in line with inflation is the first step in achieving this. Meanwhile,British billionaires at present collectively own well over £683 billion in wealth. The wealth of billionaires soared towards £180 billion between 2020 and 2023.
The Resolution Foundation forecasts that income disparity will increase each year and might reach a record level of 40.8% during 2027-2028. What does this actually mean? The wealthy prosper while the underprivileged suffer.
Written by – Sharon Sebastin
Edited by – Khalid Khursheed
