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Inflation has fallen but poorest still hit hardest by living standards squeeze

Despite a fall in inflation, it’s still high. It also remains higher than wage growth so living standards continue to be squeezed.


There was a surprise in today’s inflation report. For the first time since April 2016, the consumer price inflation rate has fallen. The 12-month inflation rate fell to 2.6% in June – down from 2.7% in May. The unexpected fall provides some respite from a spate of poor economic news for the UK.

But it’s still not looking good. Inflation is still a lot higher than it was a year ago when it was 0.5%. More importantly, it’s still higher than the growth rate of wages meaning workers continue to earn less in real terms. And the living standards for many continues to be squeezed.

In the analysis, the ONS said falling fuel prices was one of the main contributors to the fall in rate with the cost of recreational and cultural goods also providing a downward contribution. However, the inflation rates for categories including: food and alcoholic beverages; furniture and household goods as well as restaurants and hotels remained at their highest level since 2013.

Stephen Clarke from the Resolution Foundation points out higher prices – particularly for food and non-alcoholic drinks – is likely to hit poorer households hardest. So for those spending proportionately more on food, the fall in the headline rate for inflation is unlikely to be of much comfort. In a post about the inflation report, Clarke said “lower income households spend proportionately more on housing, food and drinks and have therefore experienced higher inflation since the turn of the year”.

He goes further to say that even if inflation abates as expected to 2.5% in 2018, evidence suggests that “it may not provide as much benefit for poorer households”. Clarke adds “this could mean that the current squeeze on living standards is longer and deeper than previously expected for lower income households”.


Image: © Marius_Comanescu / Shutterstock.com
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