Poorest families continue to be hardest hit with food prices at highest in decades, say experts
Poorer families will continue to be hardest hit by rising inflation as they spend more of their income on increasingly expensive food, analysis of new official data shows.
The Resolution Foundation said that while inflation hit 10.1% in July, the poorest tenth of households faced an inflation rate of 10.9%.
Meanwhile the richest tenth also saw their cost of living rise significantly, but only 9.4%.
James Smith, research director at the foundation, said: “Inflation has hit double digits earlier than expected off the back of the highest food price inflation in over two decades, and is set to continue climbing as energy bills soar this winter.”
Real pay is dropping at its fastest rate since 1997, he said, and low-income households face having to cut back non-essential spending by a quarter to cope with soaring energy bills.
“It will take many months, and much more living standards pain, before inflation starts to ease,” Mr Smith said.
“So, the number one priority for the next prime minister will be to offer significant support to help millions of families through a brutal winter and beyond.”
Elsewhere, one economist warned on Wednesday that the latest reading might mean that inflation will reach a higher peak in October than previously expected.
Earlier this month, the Bank of England’s Monetary Policy Committee (MPC) predicted that Consumer Prices Index (CPI) inflation would hit 13.3% in October as energy bills soar.
But the Bank’s forecast for July inflation undershot what the ONS measured across the month by 0.2 percentage points.
Independent experts now think the energy price cap will rise more than the Bank’s forecasts, which could further push up inflation, said JP Morgan’s Allan Monks.
“Energy bills are set to surge again in October and push inflation higher,” he said.
“Wholesale gas prices have moved up further since the MPC’s last report, pointing to a higher peak than the 13.3% they had been expecting.”
Jake Finney, an economist at consultancy PwC, said he believes inflation will peak in January instead of October.
Price cap estimates published on Wednesday by energy experts at Auxilione set January’s cap at £4,722, up from £1,971 today.
“Compared to other peer economies – France, Italy, Germany and the US – the UK now records the highest rate of harmonised inflation and is the only advanced economy now in double digits,” Mr Finney said.
“We expect inflation to continue rising in the next few months, reaching its peak in January 2023 as the energy price cap is uplifted once more.”
Liberal Democrat Treasury spokeswoman Sarah Olney called on the Government to quickly take action to protect people from rising energy bills.
“The answer is staring Conservative MPs in the face but they refuse to act,” she said.
“Energy bills must be frozen immediately or else millions of people will be plunged into financial devastation this winter.”
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