Five. 2% Inflation – Is it the Peak?
Last September, inflation reached 5.2% – the highest for 16 years. Fast-rising prices of energy, food and housing have had a serious impact on consumer finances over the past year – and many analysts argue that the real rise in costs of living to the average British citizen is even higher.
As a result, increasing numbers of people are facing the prospect of falling into debt. According to energy watchdog Consumer Focus, the number of homes currently in fuel poverty (in which households spend more than 10% of their total income on energy for their homes) could be as high as five million.
However, there may be some respite on the horizon. Economists believe the signs are there suggesting inflation may be about to come back down, and the 5.2% rate of inflation for September may represent the peak.
Why could this be the peak?
The main reasons for the fast-rising inflation Britain has experienced are external factors – namely prices of foreign oil (mainly affecting petrol), natural gas and food, all of which are loosely connected in terms of price.
Prices of all three have risen sharply in the past year, for various reasons – short supply, high demand and political reasons to name three – but due to levels of demand being hit by increasing economic uncertainty, it is looking as though prices may be about to come down again.
Statistics also show that demand for domestic consumer goods and services is also shrinking, with many consumers cutting back on spending, and increasing numbers of consumers shopping with budget retailers instead of their regular stores.
What would it mean for consumers?
It’s unlikely that prices on the whole will reduce – which is known as deflation, and could in fact be bad for the economy – but, more likely, prices may begin to settle and we may see less of the rapid price rises we have experienced in the past year. In general, this would lead to a more stable economy.
Imported commodities such as oil, gas and food may well become cheaper, as lower wholesale costs would enable retailers to make similar profit margins at much more competitive prices.
A debt management spokesperson says: “A slowing in inflation would not have an instant impact on consumers, since prices of many things would still be quite high relative to a few years ago. But since prices of fuel and energy appear to be coming down now, people might find they are better able to afford their costs of living in the next few months.
“However, there are still a lot of people being pushed into debt by high prices, and that is not something that slowing inflation can solve. We advise anyone struggling with debt to seek expert debt advice as soon as possible.
“There are a range of debt solutions available, including debt consolidation, debt management plan and IVAs (Individual Voluntary Arrangement) – all of which could help you repay your debts and get your finances back on track.”
