Three years of pain: how inflation drove Britain's cost-of-living crisis | inflation

After three long years of pressure, British consumers will finally feel some relief from the surge in prices on Wednesday when the Office for National Statistics releases inflation figures for April. The data is widely expected to show prices rising at the lowest rate since the summer of 2021.

Inflation of around 2% is significant for economists and represents a long-awaited snapback to the Bank of England's target. This still means prices are rising for consumers, but not as steeply as they used to. Inflation over the past few years has been the steepest in at least 40 years, equivalent to 11 years of normal 2% inflation rising by 22% in just three years. At the same time, real wages have fallen by 2.3% since the start of 2021, making it harder for most people to afford energy bills and weekly shops.

However, not everyone has felt the price rises equally, and not all goods and services have been affected equally. Here we take a look at notable items whose prices have risen since UK inflation was last held at 2% in July 2021, and how the UK compares internationally.

What has risen the most? Olive oil prices rose the steepest. In 2024, the price of a liter will be 120% more expensive than in July 2021, jumping from 3.65 to 8.04. Photo: Image Source/Getty Images

The Consumer Price Index (CPI) calculates changes in the cost of a variety of goods and services, from shampoo to used cars to socks. However, among the items in shopping carts since July 2021, the items whose prices rose the most were all food.

A bag of four frozen beef burgers now costs 3.56, up 51.5% from 2.35 three years ago, and a kilo of plums costs 3.63, up 53.9% from 2.36. Meanwhile, the price of cucumbers rose 72.2% from 54 pennies to 93 pennies, and the price of granulated sugar rose 72.5% from 69 pennies to 1.20 pesos.

The sharpest increase so far has been in olive oil, where a liter will cost 120% more in 2024 than in July 2021, jumping from 3.65 to 8.04. In part, this is due to climate change. Olive growers in the Mediterranean faced the hottest summer on record in 2023, impacting crop yields.

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Across all categories, food has been a big driver of UK inflation. Food costs have risen by one-third compared to overall prices. Again, low-income households were hit hardest. This is because more of their income is spent on food. Food bank Trussell Trust delivered more than three million emergency parcels in 2022-23, a 50% increase on 2019-20. As a result, some people simply eat less. Actual food consumption has fallen 7% since the first three months of 2021, according to the Resolution Foundation.

Overall, food prices have risen 31% since March 2021, while electricity, gas and other fuel prices have risen 90%, according to the Resolution Foundation.

What else and how much did it rise? The cost of going out has risen rapidly. Photo: Franco Nadalin/Alamy

CPI inflation takes into account price changes for a variety of services, from manicures to cosmetic services, driving lessons and daycare costs.

In the UK, it's the cost of going out that takes a toll on your wallet. Hotel nightly prices are now $114.63, up 31.8% from $87.97, killing any idea of ​​a budget stay, while adult theater tickets are up 32.5% from $28.85 to $38.24. Thanks to the cigarette tax increase introduced in 2023, cigarettes are now much more expensive. The price of 30g of hand-rolled cigarettes was $18.27, up 39.1% from $11.88.

Home renovations have also become more expensive. Gardeners saw the price of potting compost increase by 28.2% from 4.71 to 6.04, while the price of ceramic tile increased by 53.8% from 11.88 to 18.27.

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Despite rising costs of leisure activities from hotels to theaters, households have increased their spending on holidays and eating out since the cost-of-living crisis began to ease. Household spending on accommodation and airfares has increased 1.1% since the first three months of 2023, according to the Resolution Foundation.

To offset these expenditures, households appear to be delaying the purchase of larger tickets or luxury household items such as appliances. Researchers found that real spending on home appliances fell 18% between the first three months of 2022 and the last three months of 2023.

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Relieving the burden of gas and electricity rates. Wholesale energy prices rose 10 times compared to 2021, reaching a peak in the winter of 2022. Photo: Yui Mok/PA

Of all the pressures on spending, energy has risen the most. At their peak in winter 2022, wholesale energy prices were ten times higher than in 2021. How much consumers pay for electricity and gas in the UK is determined by the energy price cap introduced by the regulator in 2019. Preventing millions of households from being hit by sharp increases in their variable tariff bills in 2019.

In the summer of 2021, the energy price cap was set at 1,084 per year for those paying by direct debit and 1,128 for those paying by prepaid meter. In the spring of 2024, the number increased by 56% and 45.7%, respectively, to 1,690 times per year for automatic transfers and 1,643 times per year for prepaid payments.

According to the International Monetary Fund, British households fared particularly poorly compared to households in other European countries because of the country's high dependence on gas. Gas produces 40% of the UK's electricity and is used to heat 85% of UK homes.

The poorest households have been hit hardest by soaring energy prices. According to the Resolution Foundation, households with the lowest incomes spend proportionally about 50% more on energy and food than those with the highest incomes.

Poor households spend a greater proportion of their income on utility bills and are more likely to live in fuel poverty. This is defined as households spending more than 10% of their income on energy, excluding housing costs. More than a third of households (36.4%) exceeded this threshold in 2023, up from 27.4% in 2022.

Despite the decline in headline inflation, household energy costs are expected to remain about 40% higher than they were before Russia invaded Ukraine, at least until the end of 2024.

How does the UK compare?

Britain's inflation was the highest among the G7 countries and greater than all but Iceland and Sweden on the OECD's list of 23 rich countries for which it produces comparable data.

This is partly to do with the UK's dependence on food imports. Half of Britain's food is imported. Food prices may fluctuate due to high transport costs, additional costs and delays at borders post-Brexit. British supermarkets also set their prices based on long-term contracts. This means that while some supermarkets have stuck to higher prices, European supermarkets have passed on cheaper deals to consumers.

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The UK is also highly dependent on gas, making it more vulnerable than other countries to energy price spikes. Analysts say energy price caps could create an artificial bubble and allow European consumers to feel the benefits of lower energy prices sooner.

In Germany, April inflation rose to 2.4% from 2.3% in March, while in France, April inflation was unchanged from March at 2.4%. A fall in UK CPI inflation to close to 2% in April would result in one of the lowest interest rates in Europe.

But few analysts expect the fall in inflation to be reflected directly in household budgets. By the end of next year, GDP will be about 2% lower than expected before the cost-of-living crisis, according to the Office for Budget Responsibility. This equates to $1,900 per household.

Inflation may return to the Bank of England's target levels, but most British households will face lower living standards for some time until the recent rise in prices is matched by rising incomes.

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