Inflation is at a record low, but not everyone will feel the benefits, says Aleks Collingwood.
Inflation figures out today show that the cost of living is the same as it was a year ago.
These official statistics not only tell us that the UK's inflation rate remains at a record low of 0% in March, but that this figure is the lowest rate of Consumer Prices Index (CPI) inflation since estimates of the measure began in the late 1980s. Cheaper clothing and footwear produced the largest downward contributions – but this was offset by the rise in the price of petrol and diesel.
Low inflation is good news for people who have mortgages or are paying off other debts but CPI doesn’t tell the whole story. People on lower incomes typically spend a higher proportion of their money on essentials, meaning that price rises have a bigger effect on their budgets than on the budgets of the well-off.
JRF research shows that working households needed to earn substantially more in 2014 than in 2008 to achieve what the public thinks is an acceptable minimum standard of living. Overall, the cost of a basket of essential items rose by 28% over six years, while average wages increased by 9% and the minimum wage by 14%. Even if incomes are rising, they have to rise more than outgoings for the benefit to be felt in people’s pockets.
Annual earnings needed to meet what the public thinks is an acceptable minimum standard of living (per adult in household) in 2008 to 2014 were:
|Single working-age||Couple with two children|
Of course, to get an accurate view of what’s happening to household budgets, we need to look at wages as well as inflation. The rising employment rate has helped people to find work (unemployment fell by 300,000 mid-2013 to mid-2014), which is great news for millions of household budgets. But finding a job is not always a silver bullet. Low-paid, part-time or insecure work can still leave people struggling to make ends meet.
Our latest state of the nation poverty report for the UK shows us that:
- between 2008 and 2013 average male full-time hourly pay fell from £13.90 to £12.90 and average female full-time hourly pay fell from £10.80 to £10.30;
- the lowest paid 25% of men and women saw their hourly pay fall by 70p per hour and 40p per hour respectively;
- around 25% of employed women have been low paid since 2005. For men the proportion has been slowly rising since 2007 (13% to 16% in 2013);
- a million working people were claiming housing benefit to cover the costs of their rent – more than double the number in 2009.
Increased tax allowances have eased the pressure for some households, but the freeze to child benefit and ongoing cuts in tax credits have outweighed this for low-earning families with children. Out-of-work benefits have fallen further and in 2014 provided 39% of what single, working-age people need to reach what the public regards as an acceptable minimum standard of living.
We need to look beyond averages to see what is happening to those on low incomes. The rising cost of essentials, the slower rise in wages and the number of low-paid, insecure and part-time jobs have taken a toll on the poorest families. There is still a lot of lost ground to be made up before they can feel the benefits of the economic recovery.