Gavin Simpson, who was born and raised in Bishop’s Stortford, and Pete Clift host the award-winning Economics in Ten podcast. Here, they dive a little deeper into the economic situation that impacts us all…
Wondering what happened with prices recently? Filling a tank of gas seems to have reached breathtaking levels and your smart meter will display a price that would have been unimaginable a few months ago. So what’s going on and what can we do about it?
When governments talk about the “cost of living”, they are often referring to the rate of inflation and its relationship to people’s incomes. In the UK, inflation hit 5.4%, its highest level in almost 30 years – and is expected to go even higher.
Inflation is measured by finding the price of a basket of 700 goods and services and comparing it to the previous year. Each year, this basket is updated through a survey of family expenditures so that it remains relevant in current times. For example, last year hygienic hand gel and men’s loungewear were added as more people used them in the Covid era. As technology evolves, new products like electric cars and smart watches are introduced. It’s not just about goods, as new services will be added while others will be removed. Each item is equally weighted in the basket of goods, because a rise in the price of something like gasoline will have a bigger impact on a household than the price of a smoothie.
All of this means that compared to last year, the average person in the UK pays 5.4% more for their goods and services. It doesn’t really matter if your income increases at the same level, but for most people it won’t, especially those on benefits, have a weak bargaining position at work, or rely on their savings.
Also remember that inflation is an average, so some people will be hit harder than others, and over the past week, former food bank user Jack Monroe, author of the budget cookbook and anti-poverty campaigner, pointed out how the poorest in society feel the pressure more than anyone.
So how did we get here and what can we do?
Covid, Brexit and climate change have all had an impact on supply chains, which means the cost of production in many sectors has increased enormously and this eventually affects prices. As the world rebounds from the shutdowns, demand for products has increased, which is also putting upward pressure on prices.
On the energy front, cold winters across Europe and a lack of wind and sun to power renewables have led to a shortage in the UK, and despite government price caps, this has led to a sharp increase in prices.
Many also argue that the lack of competition in certain markets has led some companies to make profits. This can be seen in the petrol market, where the AA believes the price should be at least 3p lower than it is, but like most markets prices are rising rapidly but are quite sticky when they drop.
The normal way to deal with rising prices in the UK is to raise interest rates. The Bank of England has been given a target inflation rate of 2% (plus or minus 1%) by the government, and as inflation is well above target, many experts have suggested that it was to raise the interest rate from the current rate of 0.25%. .
The problem is that most of the upward pressure on prices is supply-side and interest rates are dampening demand, so it doesn’t address fundamental issues. Also, when interest rates rise, the way it dampens demand is to make borrowing more expensive or you may have to pay back more on existing loans, which means there will be less expense. in the economy. For many families on the verge of poverty, any increase in the interest rate could tip them over and, in the short term, push up the cost of living even more.
Whatever the decision, the cost of living will continue to rise as the year progresses – so from a personal perspective, what can you do about it?
It’s hard with something like energy, but with most things, it’s important to shop around and find the best deals that work for you. Use price comparison sites and think strategically when shopping. If there’s a good deal to be had, try buying in bulk and stocking it up.
Boxing Day is a great time as many stores try to get rid of their festive stock. For example, we picked up packets of Christmas pasta – pasta in Christmas shapes – for 10p at Sainsbury’s. The “best before” was 2023, so it made sense to buy lots to protect ourselves from rising prices.
If you have any great cost of living tips to share with Stortford Indie readers, then we will be delighted to see them. As you often hear in political circles, we are all in the same boat.
* Podcast by Gavin and Pete Economics in Ten recently came second in the PodBible Awards’ Independent Podcast of the Year poll for 2021 and two years ago he won the award. It can be found on any podcasting site at https://podcasts.apple.com/gb/podcast/economics-in-ten/id1450116373.
Gavin, who lives in Knebworth, was born and raised in Bishop’s Stortford, attended Bishop’s Stortford High School and his mother still lives in the town. Through their Economics Ten podcast, he and Pete, who lives in Stanstead Abbotts, sponsor a Bishop’s Stortford FC player.