Households robbed of £900 as inflation hits 6 per cent
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Your support makes all the difference.Inflation is expected to rise again today to over 4 per cent, more than double the official target of 2 per cent. But research by Pricewaterhouse-Coopers conducted exclusively for The Independent reveals that "everyday inflation" – the soaring cost of necessary items such as food, petrol and public transport – is rising by a fifth more than the headline figure.
The headline inflation figure of 4 per cent in January translates to a 5.1 per cent rise in "everyday prices" – and that is set to accelerate even further today towards 6 per cent when the official data is released. For a family with a take-home income of £30,000 and who save a little, this amounts to a hidden loss of about £900 in their purchasing power compared with a year ago.
Perhaps the most egregious example is car insurance, where costs are up by 29 per cent on the year – and unavoidable because it is a legal requirement. Other areas where it is difficult to economise include food (up 5.7 per cent), fuel (15.9 per cent) and home repairs (9.3 per cent).
The PwC research shows that everyday inflation has been higher than CPI since 1997, the gap varying from 0.5 per cent in 2020 to 2.5 per cent in 2008. Such a long-term discrepancy helps explain why the public has been increasingly sceptical about the way the Office for National Statistics' data reflect the cost of living. The ONS monitors a broad "basket" of goods and services – from smartphone apps to garden furniture – that has left the index remote from everyday experiences.
Additionally, the Bank of England recently said that the ONS's failure to account for sale prices on clothing led to systematic understatement of inflation by 0.3 percentage points.
John Hawksworth, chief economist at PwC, said: "Many people feel that the headline price index does not capture the inflation that they face. Our analysis confirms this. With events in the Middle East and elsewhere continuing to push up global oil prices, this differential is likely to continue to grow."
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