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The Bank of England warned this week that soaring energy bills will push inflation above 4% this winter, putting pressure on already tight household budgets. The economic fallout from the pandemic and Brexit is driving up the cost of essentials such as food and clothing, as well as travel and even home renovations. We look at how this perfect storm affects you.
Supermarket shopping
Widespread raw material price increases – from wheat to sugar, coffee and palm oil – combined with a shortage of truck drivers and food processing workers and increases in the cost of supplies including packaging will drive supermarket prices higher this fall and winter. It is believed that food prices could rise by at least 5%.
Meat processors warned in the summer that difficulties in hiring workers would drive costs up. These problems were only compounded by a dramatic increase in carbon costs2 Gas used in the slaughter of pigs and poultry and in the packaging of meat and dairy products.
But problems are not just local. Growing demand for lockdown amid the supply chain crisis and difficult weather conditions are driving food prices higher around the world. Coffee has hit a seven-year high around the world that experts say will knock consumers’ pockets. Pasta will also increase as a lack of durum wheat is caused by drought and rising temperatures on farms in Canada, one of the largest producers. One analyst predicted that the price of a 500g packet of spaghetti could jump 60p, or 50%, to £ 1.80.
Clive Black, an analyst at Shore Capital, said there is not necessarily a straight line from commodities to price increases on supermarket shelves as competitive pressures and demand also play a role in suppressing inflation. For example, while wheat has increased, packaged bread is unlikely to increase as demand falls and suppliers compete heavily for business.
Clothing and other housewares
Less choice and higher prices are on the way when you need to replenish your closet or revitalize your living room.
Retailers from Dunelm to Halfords recently warned of difficulties importing products that indicate inflation from higher material prices and transportation costs. Moving a container from East Asia to the UK cost $ 8,000 (£ 5,840) last year, but in some cases it cost more than $ 20,000, adding to soaring metal, wood and cotton costs.
In the case of clothing, price increases may not be enforced until the spring, as fabrics such as cotton and other materials are likely to have been bought well in advance. The exchange rate to the dollar, in which most clothes are traded internationally, is also relatively cheap.
Shore Capital’s Clive Black said the main impact on price is likely to be from a much smaller discount on clothing and possibly a lot of other merchandise on the main drag this fall and winter as retailers have been cautious about buying supplies. “I expect Black Friday to be very unusual. I don’t think Clobber will come anywhere near the big discounts and rebates we’ve seen in the past few years. “
Go out
Staff shortages and rising prices for food and drinks are likely to lead to larger tabs in pubs and restaurants in the run-up to Christmas.
Three-quarters of hospitality companies said they would likely raise prices for their customers, according to a recent survey by industry analyst CGA and service company Fourth. That’s not surprising as the price of sparkling wine in supermarkets soared 6% this month, according to the latest data from analysts at Kantar, with chips up more than 5% and fruit juices up 4%.
Rising costs for cleaning products and other consumables are also adding upward pressure on service personnel wages in the face of fierce competition for workers. Highly skilled jobs like chefs are in high demand as many of the EU workers who traditionally underpinned the industry have gone home after Brexit. Now even coffee shops that tended towards the minimum wage are being forced to raise wages. Both Pret and Costa recently announced that they will increase their salaries by around 5%.
transport
Many households will have saved money on transportation during the lockdowns, but once restrictions eased, costs have soared again. Gasoline prices are at an eight-year high as rail commuters in England and Wales are getting used to paying more after ticket prices rose 2.6% in the spring.
The fuel shortage has created more pain for drivers who have to dig deeper when refueling. According to the AA, gasoline consumption has risen to 135.9 Pa liters, a level that has not been reached since 2013. That’s 15 pence more than before the pandemic and, based on fueling a driver twice, adds up to an additional £ 16.50 per month for fuel.
“With British families coming under tremendous pressure from rising prices, gasoline costs are one of the biggest increases,” said AA’s Luke Bosdet. “Families can maybe switch to an alternative when shopping, but that doesn’t work with gas.”
Household bills
More than 1.5 million households are affected by the energy crisis, to which seven small energy suppliers have fallen victim. Their clients used to pay £ 800-900 a year, but now they have to pay more than £ 400 extra. Because switching to a new provider means that they move to a price cap set by Ofgem, which will be equivalent to £ 1,277 for an average household from the beginning of next month.
But higher energy costs aren’t the only concern as households have to raise the money to cover higher council taxes, water, and even broadband and cellphone bills. Council taxes on the average home soared 4% to £ 1,881 this year, while water bills rose 3% to £ 408, according to comparison site Money.co.uk.
handyman
Last year the British invested money in home renovations, but the cost of roof extensions and extensions is rising as builders have to contend with large jumps in material costs and higher labor costs.
Plywood is up more than 80% in the past year while wood is up 64%, according to Noble Francis, economic director for the Construction Products Association. There is also an expectation that essentials like cement and brick will rise.
“Renovation costs are certainly increasing, not only because of the material side, which has been the main driver of inflation since last fall, but recently we have also seen a significant increase in labor costs.”
In the three months to the end of July, official data showed that construction wages were 11% higher than in 2020, with workers taking home £ 636 a week. This is particularly relevant for the home improvement market, where the wage bill accounts for around two thirds of the project costs.
