Inflation and the Cost of Living
Inflation is a complicated topic to fully explain, but can be distilled to a simple definition – the reduction in purchasing power of a currency, otherwise observed as the rising price of household goods over time. A conservative, well-regulated annual inflation rate as targeted by the Bank of England indicates a successful and growing economy, while a variable or negative rate of inflation can cause market volatility, and fail to inspire confidence in consumers. Inflation does not directly correlate to the cost of living, which itself describes the affordability of essentials and amenities to the average citizen. Wages and salaries are supposed to increase more or less alongside inflation, keeping the cost of living stable – but sometimes, this doesn’t happen.
The Growing Cost-of-Living Crisis
In what has been labelled a ‘cost-of-living crisis’ by many media outlets and opposition MPs, a number of financial events and directives have coincided that threaten the livelihoods of working- and middle-class citizens. For starters, the rate of inflation has risen to 5%, 250% larger than the target inflation rate. Meanwhile, more than half of UK workers have experienced a real-term pay cut in recent years – meaning their wages have not increased in line with inflation. This, coupled with a planned hike to National Insurance contributions and a national energy crisis increasing bills by more than 50%, makes for a perfect storm whereby the average salary does not go nearly as far as it once did.
Tips for Reducing the Impact of the Cost-of-Living Crisis
Many across the country will be feeling the pinch as a result of these events and measures – and while government action may be on the way, there are ways in which you can reduce the impact of the crisis on your own income in the meantime.
Minimise Emergency Expenditure
The biggest shocks to personal finances often come in the form of unexpected costs, which eat into or even destroy savings entirely. One useful way to eliminate the possibility of this is in the form of insurance. Renter’s insurance can help you avoid suffering too keenly in the financial consequences of an accident in your property, and keep your savings intact; meanwhile, altering your car insurance policy to suit your current needs could save you money, either by reducing your premium or reducing the cost from a previously un-covered incident.
Re-Assess Your Budget
While the upcoming challenges will represent a sharp rise in costs for many across the country, the cost-of-living crisis has been creeping into personal budgets for years prior. Maybe your spending habits have remained unchanged for a while, and the increased cost of the average shop has been slowly eating further into your income without your noticing. Now is a good time to draw up a monthly budget, examine your average food shop and consider swapping certain brand items for non-branded alternatives.
Switch Providers
Previously, switching utility providers regularly was a sure-fire way to keep energy costs down. But energy bills are sky-high across the board, making switching ill-advised for the majority. Instead, choose not to renew your tariff when it expires; you will be placed on a variable rate subject to the Ofgem price cap, which will be cheaper than any fixed rate tariff. Switching your internet and phone contract provider are still viable ways to reduce your outgoings.