Household cost inflation hit 3.9% in June

Latest Office of National Statistics (ONS) data has shown that household cost inflation was 3.9% in the year to June – up from 2.7% in the year to March.

Lower earners were hit harder than higher earners – those in the second decile saw inflation of 4.1% and those in the ninth saw 3.8%, it was the first time lower earners faced the brunt of price rises since June last year..

For private renters, cost inflation was 4.5%, for those with mortgages it was 4% and for outright owners it was 3.4%.

Whilst for retirees it was 3.8% – lower than for those of working age at 4%.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “No matter your age, what you earned, or whether you owned your own home, you’ll have felt the pinch of inflation in the year to June, as prices were rising faster across the board. However, renters and those on lower incomes were hit the hardest, and they are the groups who are least able to weather the storm financially.

“Awful April shoulders much of the responsibility for the pain, with rises in the cost of essentials from council tax to energy bills. Lower earners spend a larger portion of their income on these kinds of costs, so when they rise, they take more of a toll. The HL Savings & Resilience Barometer shows this group (the second quintile) has just £34 left at the end of the month, so there’s a danger that price rises wipe them out entirely.

“The pace of rental hikes had slowed in the previous three months, so it put some downward pressure on cost inflation for renters.  However, when added together with the impact of higher bills, inflation for this group hit 4.5% – higher than any other group. Part of the problem is that so much of their income goes on rent that any rises have a disproportionate impact. ONS data shows renters in England now spend an eye-watering 36% of their income putting a roof over their head, so it’s hardly surprising the Barometer shows they have just £62 left at the end of the month.

“Inflation for those with a mortgage rose very slightly, to 4%, because despite the slowing of the rises in mortgage interest payments, higher bills kept their overall inflation rate higher. Average mortgages were still increasing, because so much of the mortgage market is fixed, so previous rises in interest rates continued to feed into higher overall rates as people were forced to remortgage. However, the rates they were remortgaging onto has been falling – so the gap has been closing.

“Inflation has also risen more slowly for higher earners. This will be manageable for many households, because their finances tend to be far less stretched than among those on lower incomes. The HL Savings & Resilience Barometer shows that households headed up by the ninth decile of earners have £532 left at the end of the month, so they can roll with the punches more effectively than those on lower incomes.

“The inflation rate picked up for retirees too, hitting 3.8% – compared to just 1.3% a year earlier. Higher household bills take the lion’s share of the blame. They make up a larger proportion of the spending of this group, so price rises have a disproportionately negative impact. Retirees still face a lower rate of inflation than working people, but anyone living on a level annuity with a fixed income will be relying on rises in their state pension to close the gap. As time goes on, they may have to make increasingly difficult choices in order to stay on top of their monthly bills.”