The cost of living crisis is primarily caused by the joint challenges of elevated inflation and stagnant wage growth. As inflation outpaces increases in wages and benefits, individuals find themselves with diminished purchasing power for their essential supplies.
Inflation is the gauge of the pace at which prices are escalating. An annual inflation rate of 4% signifies that an item priced at £1.00 last year would now cost £1.04. Similarly, an item that previously cost £10.00 would now be £10.40, and so forth.
Several factors contribute to the surge in prices, these include:
Energy Market Turbulence
Since the commencement of 2021, the demand for oil and gas has surged as countries progressively ease pandemic-induced lockdowns. This heightened demand and supply uncertainties arising from the Ukraine conflict have led to a surge in global energy prices. The subsequent escalation in energy company expenses translates to amplified costs for both domestic and business energy consumers.
Reduced Government Support
The revised Energy Bills Discount Scheme offers reduced support to businesses in comparison to the Energy Bills Relief Scheme. Many small businesses are facing difficulties due to reduced financial aid and increased bills after the new scheme started in April. Experts predict that around 370,000 small businesses may need to downsize, restructure, or even close operations.
Shortages of Goods and Supply Disruptions
The Russian invasion of Ukraine is having a substantial influence on global consumer price inflation hikes due to supply disruptions. These surging gas and electricity bills play a pivotal role in the overarching crisis. Statistics from the Office for National Statistics (ONS) reveal that approximately half of the CPIH inflation in April can be attributed to the wholesale price surge of gas.
The consumer prices index stands as the most comprehensive inflation measure, encompassing all categories of household expenditure along with the entire spectrum of homeownership costs and living payments, including council tax.
To illustrate the extent of year-on-year energy price increases, consider that CPIH surged by 5.7% over the 12 months leading up to March 2023.