Inflation hits 30-year high

Official figures show that inflation jumped to 5.4% in December, with this the highest rate since the 7.1% recorded in March 1992.

The consumer price index (CPI) measure of inflation was up from 5.1% in November, with soaring food costs and energy price increases helping drive the rate up.

The Office for National Statistics (ONS) data shows that the cost of goods rose by 6.9% while services increased by only 3.1%. The rising cost of living could put pressure on Bank of England to raise interest rates in a bid to bring inflation closer to its 2% target. The Bank, which raised rates from 0.1% to 0.25% last month, expects inflation to hit 6% this spring.

Commenting on the rise, Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Household budgets are facing a double-whammy of high inflation and looming taxes rises this year. This is creating a perfect storm for household budgets – our concern is that this will tip many more households into financial difficulty in the coming months.”

“It has never been more important to make sure people receive the free debt advice that can turn their situation around. I would urge anyone who is worried about their finances to seek free, independent debt advice from a charity-run service like National Debtline as soon as possible.”

Alastair Douglas, CEO at TotallyMoney said “Rising prices left, right and centre are not only putting a dent in people’s lifestyles, they’re causing many to make decisions they shouldn’t have to: heating or childcare, food shop or rent. ‘Squeeze’ doesn’t cover it: the cost of living is currently a crisis. As inflation outstrips pay, there is a growing shortfall between income and outgoings. This means more people can’t help but miss payments and other forms of credit commitments. It’s becoming increasingly important that we help these individuals understand their financial situation, and the way to escape without being caught out. In fact, this is urgent.”

Jack Leslie, Senior Economist at the Resolution Foundation, said “Rising inflation means that Britain’s cost of living squeeze will continue to get tighter over the coming months, particularly when energy bills jump in April.”

“The drivers of inflation are becoming more broad-based, though still goods-focused, and will therefore affect everyone across society. Output price inflation – a leading indicator of wider inflation – eased in December. This may be a blip, but it could indicate an easing of price pressures.’

“Periods of sustained inflation over five per cent will be a new experience for a new millennials and Generation Z, and a throwback to older generations who remember the 1980s. However, the impact of high inflation in terms of shrinking pay packets is becoming wearily familiar to younger workers, who have already experienced three sustained periods of falling real wages in their short careers.”

Rebecca McDonald, Senior Economist at the Joseph Rowntree Foundation, said “Many families are already feeling the shock of recent rises in the cost of living, which are causing real fear for those on the lowest incomes. The full effects of the massive energy cost increases expected in April when the price cap is lifted, coupled with rises many have seen so far in energy, food and other essentials, will combine to present many with completely impossible choices.”

“Living in a cold home or restricting the food you buy for yourself or your children places an enormous strain on families, but we know it is a daily reality already for many. As well as rising foodbank use, we are seeing instances of people needing to seek other sources of help, such as asking neighbours for spare duvets in order to keep warm.”

“For those on the lowest incomes, even small increases risk pulling them deeper into poverty, with the support available through the social security system proving inadequate to protect families from harm.”

“Urgent and targeted support for people in poverty is essential if families in this country are to bear the shock of this latest rise to their cost of living.”