Inflation at its highest rate in four decades – and hits double digits for low-income families

CPI inflation hit 9 per cent last month, its highest rate in four decades, while RF analysis estimates that inflation for the poorest households was higher still at 10.2 per cent, the Resolution Foundation said today (Tuesday) in response to the latest ONS prices statistics.

CPI Inflation rose by 2 percentage points between March and April this year – the sharpest monthly increase since 1980. This recent surge was driven by rising household energy bills, with the energy price cap increasing by £693 (54 per cent) for the typical family in April. Households had already seen petrol prices reach their highest real rate since 2012, and some of the impact of higher energy prices is still to come through with rising costs for businesses likely to be passed on to consumers later in the year.

Other significant drivers of inflation include food prices which rose by 6.7 per cent (the highest level since 2011), and durable goods, where prices rose 8.5 per cent (the second highest rate on record).

Analysis of the latest data by the Foundation shows that inflation is – at 10.2 per cent – significantly higher for the poorest tenth of households than it is for the richest tenth of households (8.7 per cent). This is because lower income households spend a greater share of their family budgets on energy bills where prices are rising sharply.

The Foundation says that while everyone is affected by the tightest squeeze in household incomes in half a century, low-income households are facing the toughest time, and should therefore be the top priority for further support.

Fortunately, these groups can be easily targeted via the benefits system, and particularly by further uprating key benefits such as Universal Credit, or by a radical increase in the ambition of the Warm Homes Discount scheme to reduce energy bills for poorer households.

Jack Leslie, Senior Economist at the Resolution Foundation, said:

“Inflation reached a 40-year high last month off the back of a sharp rise in energy bills and the highest food price inflation in a decade. These recent drivers of inflation mean that lower-income families are facing the most severe cost pressures, with their inflation rate already hitting double digits.

“Inflationary pressures are likely to continue to grow through the year as the effects of higher energy prices continue to work their way through businesses and into consumers’ pockets.

“Nobody knows how long these pressures will last, or how workers will respond via higher wage demands, which is why the Bank faces a tough judgement on the pace and scale of interest rate rises.

“But one thing is certain – the government must provide further targeted support for those lower income families at the sharp end of this crisis.”