The Office for National Statistics (ONS) has recently declared that inflation rose to its highest level since 2013. Exceeding the government’s inflation target, and hitting consumers hard, this larger-than-anticipated rise signals a blow to the economy.
Facts and figures
Inflation soared to 2.7% in April 2017, rising 0.4% in just a month alone. According to the ONS, the UK hasn’t seen figures like this since 2013, despite the Bank of England setting an inflation target of 2%.
Reasons behind the rise
A surge in airfares is said to be the root cause of the inflation hike, with Easter holidays at the end of April pushing up prices. Other key factors that experts believe may be responsible for the rise in inflation include electricity prices, the cost of clothing and vehicle excise duty (VED). A drop in fuel costs partially offset the hike, however.
A rise in inflation impacts on every level. According to The Telegraph the inflation surge to 2.7% caused the pound to fall back below $1.29 against the US, while it hit a one-and-a-half month low against a resurgent euro.
From a consumer point of view, a hike in inflation isn’t such a good thing. Higher prices and stalling wage growth means that real incomes are squeezed. In order to maintain the same standard of living, households will need to spend an extra £20.2 billion collectively due to the inflation hike. Compared to last April, this represents an extra individual household spend of £742 to enjoy the same standard of living.
Savers and investors will also feel the pinch, with the inflation rise devaluing future interest and dividend payments. For anyone dependent on savings and investment for their income, seeking financial advice may become a pressing concern. Back office systems for financial advisers, such as those offered by https://www.intelliflo.com/, will be more important than ever during these challenging times for savers and investors.
In particular, retired people who live off a fixed income will be hit most by the exorbitant inflation rise. Many retirees already struggle financially and rely on savings or investments to support their standard of living, so this will come as a blow to this already vulnerable sector.
It’s not all bad news, however. Anyone who has borrowed money will rejoice at the inflation hike, as this erodes the value of their debts.