Inflation: how much have costs of living really gone up?
26/06/2008
For those of us keeping a keen eye on our finances, the official 3% rate of inflation might seem a little low. It may be above the Government’s target inflation rate of 2%, but a 3% rise in average costs would still be affordable for the majority of British households.
In reality, the UK has recently experienced some sharp rises in costs of living that are less than manageable to many people – particularly those already stretched to their limits by debt.
It’s clear that the official inflation rate does not tell the whole story. This is why The Telegraph recently reported on what they call the ‘Real Cost of Living Index’ (RCLI): an unofficial measure designed to map out exactly how much more the average UK citizen pays out each year – and most importantly, the rise in essential costs that are unavoidable without significant lifestyle changes.
How is inflation calculated?
Inflation is the Government’s measure of how fast prices of goods and services in the UK are rising. They measure it by calculating the rise in price of a ‘basket’ of goods and services – a made-up basket that represents the buying habits of the average UK household.
Many companies use the rate of inflation to determine salary rises, and the Government will often use it to decide on rises in taxation and pensions – all of which are meant to keep the economy moving steadily.
However, many people disagree with the way inflation is measured, arguing that it does not accurately measure costs of living: it focuses more heavily on non-essential goods and services than on essential costs such as household bills, transport costs, etc.
Real cost of living?
The Real Cost of Living Index focuses on four key areas which affect household outgoings.
- Transport costs – 27% average rise in the last 12 months
- Food costs – 23% average rise in the last 12 months
- Household bills (incl. Council tax) – 10% average rise in the last 12 months
- Taxes – 1% rise in the last 12 months
Managing your debts
“Costs of living are seemingly on a constant increase now,” says a spokesperson for Debt Advisers Direct, “so most of us are looking at ways of lowering our spending as much as we can. That might include walking more, eating out less, spending less on leisure activities, or maybe even selling our homes and downsizing.
“But lowering costs this way is especially difficult for the rising numbers of people in debt, who have to cope with the rising costs of living and their (often rising) debt repayments. When money is already tight, managing debts may be an even bigger concern.
“But there are a number of debt solutions designed to help people in different situations,” the spokesperson continues. “Both debt consolidation and debt management, for example, can lower monthly repayments as well as simplifying finances.
“It’s important to remember that lower monthly payments means paying for longer, possibly paying more in the long run. But at a time like this, the most important thing is often making sure you can afford your monthly outgoings.”
If you are struggling to repay your debts, it’s essential that you speak to an expert debt adviser. They will be able to speak with you impartially and advise on the best course of action to take. Debt Advisers Direct offer a range of debt solutions designed to meet different situations, including debt consolidation, debt management plans and IVAs (Individual Voluntary Arrangements).
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