Reasons for inflation & the Rise in Cost of Living
If you are reading this, you have probably noticed your gas, energy and electricity bills have risen quite sharply in recent weeks. Given that times are already hard enough thanks to Covid-19, this will most certainly not be a welcome development. Many people have noticed their bills treble and sometimes increase even more sharply. Understandably, this has given rise to concerns about how people will afford these vital amenities. But what exactly has happened to trigger these sharp rises? How is it that we now find ourselves in the midst of a cost-of-living crisis?
A number of factors have contributed to the rising cost of living. First, the increase in prices has also been influenced by recent disruptions in global supply chains. During the COVID-19 pandemic, for example, the mass closure of factories in Asia resulted in a shortage of semiconductors, which are an essential component in many commonly used consumer goods. Similarly, shipping costs have also increased drastically due to shipping firms anticipating reduced demand during the pandemic and reducing their capacity by around 11% as a consequence.
Between September 2020 and September 2021, the average transport cost of a large container increased fourfold. The knock-on effect has been a rise in prices of imported products. The price of both oil and gas has risen globally, resulting in energy suppliers having to pay more for their products. The inevitable result of this is higher energy bills for the ordinary consumer.
The ongoing war in Ukraine has played a significant role in the rise in costs. Many international companies have ceased operations in Russia, either in line with economic sanctions or to protect their international reputations. Other companies have been forced to temporarily close factories in Ukraine due to security concerns. The closure of these facilities has resulted in a shortage of essential parts such as wiring harnesses in cars and industrial production has consequently declined. Currently, the UK only imports around 13% of its overall fuel from Russia but remains vulnerable to any disruptions in oil and energy imports to the EU, which relies more heavily on Russia for energy.
The integration of both EU and UK energy markets means that prices for commodities such as electricity and gas will rise and fall together. In addition, recent EU moves to phase out its Russian imports will see a rise in prices in other markets of which the UK is a customer, including Norway and Qatar. Ukraine is also a major exporter of agricultural products such as grain and sunflower oil. With these commodities either destroyed or inaccessible, a rise in global food prices is sadly inevitable.
On the domestic side, UK inflation has risen exponentially. It is now at its highest rate since March 1992, with the Bank of England warning that it is likely to continue rising in the future. At present, it is around 9% and experts warn that it is likely to rise even further. In April 2022, a number of measures led to a sudden spike in costs for UK residents. First, Ofgem raised the energy price cap by 54%, which means that those people who pay their bills by direct debit will incur an annual rise of nearly £700. National insurance also increased by 10%, which experts predict will have the most profound effect on the lowest earners in society. Then, council tax increased by approximately 3.5% resulting in some homeowners being obliged to pay around £2000 every year. A freeze was also implemented on the income tax threshold, meaning that take-home earnings for most people have been reduced. And finally, water bills have begun to rise at an average of 1.7%. Yet more changes that are set to influence the cost-of-living crisis in the United Kingdom include an increase in benefits of just 3.1%, the largest hike in social housing rent prices for over a decade and a rise in VAT for the hospitality sector, which in turn will be offloaded onto the customer.
The hospitality and transport sectors have also seen a decline in their staff numbers. This is due to both the pandemic and also to Brexit, as many continental employees have returned to their countries of origin.
If you are struggling with the rises in bills, what can you do about it? If your energy bills are giving you grief, you may be eligible to apply for either the Warm Home Discount or the Winter Fuel Payment. If you are having difficulties paying your rent, you may find it beneficial to apply for Universal Credit which has replaced the traditional housing benefit. If you are already in receipt of benefits but they are insufficient to cover your housing costs, your local authority may be able to assist you in securing a discretionary housing payment.
If you are struggling to pay your council tax, you can apply for a reduction via the government’s website. Should you be struggling to pay your water bills, your supplier may have a scheme available to assist you in paying. If you are struggling to buy essentials like food, your local council may be able to support you in this regard and being in receipt of benefits is not a requirement for this aid. If you are in need of any assistance, the Citizens’ Advice Bureau has a comprehensive guide on all manners of support networks for various kinds of living costs and they will be able to advise you on which will be best for your situation.
In conclusion, the present cost of living crisis has been brought about by various international and domestic developments. Many people will find it harder to meet their essential needs but if you are one of them, don’t forget there is always help and assistance available.
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