Is the cost of living on the increase?
Commentary | 25/10/21
We are being told that there is a rise in the ‘cost of living’ but what does this mean? Simply that the necessary costs we all face are going up, but what is driving this rise now?
September saw a slight drop in inflation, but economists predict this is likely to only be a temporary dip before the rate continues to rise into next year. A rise in the level of inflation means the costs of goods and services have gone up, and this translates into a struggle for many as they try to manage their family finances, especially if wage growth cannot keep up.
We have all read about increases in the price of fuel, food, and other costs in recent weeks. Some of us will also have struggled to fill up at the pumps or find everything we want at the supermarket.
These shortages and rising prices will translate into bigger household bills for many as we look towards Christmas. This comes at the same time as many of the Covid-19 support schemes are being withdrawn.
The Bank of England (BoE) has said it will have to act soon on rising inflation. This means that an imminent rise in interest rates is likely, with the hope of the reducing the price of goods – but this will mean higher costs for borrowing across many credit products.
For CCTA members, the higher costs of living will need to be factored into lending decisions. They will need to think about what this means for affordability assessments. For some, these additional costs will mean that credit is no longer affordable.
Undoubtedly, the effect of the pandemic is at play here, along with some of the supply chain issues caused by Brexit. Rishi Sunak will deliver his Autumn budget later this week, where he will try and address some of the pressures on households. We have already seen that the National Living Wage is to rise.
The BoE rate setting committee is next due to meet in early November. Only then will we get a truer picture of how this will play out. It remains to be seen if this is simply how we move out of the pandemic and beyond the teething problems of Brexit, or if tougher economic times are here to stay.