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The Office for National Statistics announced that the consumer price index for the month of February rose to 2.8%, up from 2.7% in January and the three months prior. WAIT! Don’t go away. This brief article is not financial techno-babble. It should help you understand what the CPI and inflation means to you on a personal level – something the average Joe doesn’t often understand.
The CPI is a broad overview of the prices of goods and services compare to the previous year. In other words, according to this morning’s news, the average Brit paid 2.8% more for everything from petrol to prune juice. 2.8% doesn’t seem like very much, but on a national scale it could mean the difference between interest rates going up or going down. If interest rates go up, you will eventually get squeezed when buying on credit.
Here’s where the rubber meets the road. If you are an hourly-paid employee (assuming that you have a job), did you get a raise during the past year? If you did, what percentage raise did you receive? Was it more than 2.8%, or was it less? If it was less, you are getting squeezed. If your raises are continually below the CPI, you are eventually going to feel the pain, and you won’t even have seen it coming. You’ll probably wonder why you haven’t been able to make ends meet. You will be the unwitting victim of what David Kern, the chief economist at the British Chambers of Commerce described when he said “persistent above-target inflation has squeezed businesses and consumers.”
Sylvia Waycot, the editor of Moneyfacts described the hole that many taxpayers are in. While you may still be able to put money away in a savings account, you may think that you are beating inflation. You’ve got to understand that “To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying at least 3.5% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 4.66%.” Good luck with that. In fact, you’re going to need more than luck, because there is no such savings account in Great Britain paying that return.
The blame for the increase, at least for the moment, seems to be falling on the shoulders of energy companies’ price increases and petrol prices, but the real issue for common wage-earning and fixed-income consumers is the ability to stave off the pressure of the burden that they must bear. James Knightly at ING said, “Household incomes remain squeezed by the fact [that] wages are still failing to keep pace with the cost of living, with Wednesday’s budget unlikely to offer any significant respite.”
