Cost of living Increases
We are all feeling the effects of inflation, increasing energy, fuel and the price of basic foodstuffs, not to mention the impact to business owners and remaining profitable. In this article, we take a look at the background and what to expect moving forward.
The crisis faced by many households simply means the cost of living is rising faster than incomes are. The reason it has been labelled as a crisis is because it is being driven by a number of different factors and is therefore extremely complex to resolve.
The government has ended support offered during the pandemic to business, there are staff shortages in hospitality and transportation, many foreign workers have left the country, goods shortages due to supply chain issues across the globe and all this coupled with the high demand for oil due to the Ukraine conflict pushing energy prices up across the globe, means that prices are rising in multiple areas.
Disruptions and the effect on inflation
Inflation is the official measure of how the cost of everyday goods and services are rising.
UK inflation reached a 30-year high of 6.2 per cent in March and the Bank of England warned it could hit as high as 8% in coming weeks. The Government Actuary’s Department has posted a blog article recently – Inflation, its personal – written by Christopher Ward, Actuary.
The article provides a useful update on the scope and cause of rising prices. It says:
“We are in a period of high inflation of prices for goods and services. The Office for National Statistics (ONS) shows one of the inflation indices has increased by 6.2% in the 12 months to March 2022.”
“This is the highest that CPIH (Consumer Prices Index including owner occupiers’ housing costs) has been since 1992. Among the main components of this increase are transport costs, such as petrol and diesel and the price of second-hand cars.”
“During the pandemic prices for some goods and services fell, such as for eating out and holidays abroad. This reflected a rapid fall in demand which quickly shifted with demand gradually returning and supply then becoming challenging. Lockdown and workforce availability were key causes, but another factor was the reliance of so many products on semiconductors.”
The chip shortage
This reference to the shortage of semiconductors is a real concern for manufacturers of consumer goods.
Christopher Ward’s post continues:
“They [semiconductors] feature in ever more numbers of products such as computers, cars and even kettles. The demand for semiconductors has been outpacing supply.”
“This has been compounded by other factors, such as the surge in early retirements during the pandemic and increasing energy prices due to the geopolitical situation.”
“These factors and increasing semiconductor production can be managed with a view to bringing prices back down again. However, solutions such as building new semiconductor manufacturing facilities take time, so until then, prices will continue to increase.”
Effects from April 1st 2022
April will be a tough month for many experiencing the increases to living costs. There are a number of price hikes which include:
Energy bills: Ofgem confirmed that the energy price cap will increase by 54% from 1 April. This price cap on an average bill will rise £693 for approximately 22m customers.
National Insurance: As the Treasury looks to reduce the Covid backlogs and begin funding social care in the NHS, employers and the self-employed will all pay 1.25p more in the pound( from 12% to 13.25%).
Water: Industry body Water UK stated that costs wills rise by an average of 1.7% in England and Wales from April. This will push up the typical annual bill by roughly £7 a year
Council tax: Increased by 5%, (2% council tax, and 3% for social care).
Rail & Air Travel: Ticket prices are expected to increase by about 10% according to The Telegraph “if ministers keep them pegged to the Retail Prices Index”.
Mobile and broadband: Customers are due some expensive price hikes for services. Providers are adding an extra 3-4% to the inflation rate, which means you could see as much as 11% added to your bills this year.
Postage & Shipping: The price of a first-class stamp will rise by 10p with second-class stamps going up by 2p. If your business relies heavily on postage or shipping, you should be factoring this into your margins.
It is likely that inflationary pressures will continue to affect our personal financial position and our businesses for some time. Planning ahead is key to ensuring resilience in businesses.
Reviewing the impact and costs to your business is something that you should be doing to ensure you can retain profits.
As with all our posts, it is not feasible to cater for all scenarios so if you have specific concerns about the best way to manage these inflationary pressures for your business, please call us for an informal discussion.