Household costs rise by 2.5%

Latest ONS data as measured by the Household Costs Index (HCI), has found that household costs rose 2.5% in the year to June 2024, slowing from the annual rate of 4.5% in March 2024.

Over the past three years, the all-households inflation rate has followed the fifth income decile most closely; costs for these households rose 2.3% in the year to June 2024, compared with rises of 3.3% for high-income households (decile 9) and 1.7% for low-income households (decile 2).

Those with mortgages faced inflation of 3.7%, compared to outright owners at 1.3%. Private renters saw overall price rises of 3.2%.

Commenting on the data, Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Stubborn mortgage rates and runaway rents are clobbering working families. Lurking underneath the headline figures of easing inflation is mortgage misery and ruinous rent hikes that mean some households face inflation rates as high as 3.7%.

“The overall figure looks increasingly positive, with the household costs index rising just 2.5% in the past 12 months. It’s a significant easing from 4.5% in March, and a world away from 9.8% a year earlier.

“For pensioners, the news is even better, because their inflation rate is just 1.2%. This comes down to how retirees typically spend their income. They’re more likely to either own their home outright – so they don’t face higher mortgage costs, or they might live in social rental property, which has seen lower rate of inflation than private rent. At the same time, they spend a disproportionate amount of their income on bills, so they benefited particularly from the cut in the energy price cap in April.

“At the same time, they saw their state pension rise 8.5%, thanks to the triple lock, which meant for many pensioners, the cost-of-living crisis has eased fairly significantly since the peak a year earlier. Of course, this is the calm before the storm this winter, when rising fuel bills and the cuts to the winter fuel payment will mean bills dominate pensioner spending to an even more alarming degree, forcing many to cut their energy use, which risks serious health implications.Mortgages

“The impact of higher mortgage rates is feeding through into people’s pockets, as more of them remortgage. The picture is bleak. Those with mortgages face a far higher inflation rate than those without. And those with bigger mortgages are suffering even more horrible jumps in monthly payments, which is why higher earners and parents face horrible price inflation.

“The HL Savings & Resilience Barometer in July found that those who have remortgaged onto a higher rate between the end of 2022 and the middle of 2024 have an average of just £315 left at the end of the month – £95 less than those who are yet to remortgage.

“Renters don’t escape the pain, because soaring rents stretched renters horribly – and because they tend to be on lower incomes, those rents absorb a disproportionally large portion of their income, so the impact is felt even more keenly. In many cases their finances were already on a knife edge, so inflation of 3.2% will be particularly painful. The Barometer found that renters have just £79 left at the end of the month. They also only have enough savings to cover two weeks’ worth of essential spending on average – when the minimum recommended is three months’ worth.”