UK Edition
Soaring inflation and tax rises will result in a record hit to disposable incomes of £500 per person on average.
The reduction in household disposable incomes, calculated by the Office for Budget Responsibility, dwarfs the aftershocks of the pound’s drop following the Brexit referendum, as well as the impact of the financial crisis.
Consumer prices rose 6.2pc in the year to February, a new 30-year high.
The budget watchdog warned the pain will become even more acute, peaking at nearly 9pc at the end of this year amid a “second wave” of inflation spurred by soaring input costs.
Clothing and other items
Women are feeling the squeeze most on the high street as their clothing prices rise at a faster rate.
While overall clothing inflation has picked up to 8.8pc, prices for women’s garments have jumped 12pc, according to the ONS. The cost of footwear has risen 9.1pc with an 11pc increase for women’s shoes.
Clothing stores are passing on higher costs from wages, shipping and energy, with retailers also offering fewer discounts than last year when the UK was in lockdown. Martin Beck, chief economic adviser to the EY ITEM Club, said the jump in clothing and footwear prices was “reflecting unusual seasonal pricing patterns”.
Several retailers, including Next and Superdry, have warned they will have to increase prices as the cost of raw materials surges, with the former anticipating a 3.7pc increase in the first half of this year, and 6pc in the second.
The price of a standard men’s crew-neck T-shirt from Next has already increased from £6 to £6.50 since last May. Primark, the discount fashion giant, has pledged to freeze prices.
Rising raw material costs have pushed up furniture prices, which rose 15pc year-on-year, while carpets and flooring costs have jumped 9pc. The price of Ikea’s Malm double bed frame has risen from £129 in March 2021 to £179.
White goods are suffering from supply shortages and rising commodities prices, affecting their multiple components and complicated production chains.
AO.com’s highest-rated washing machine, a Bosch Serie 8, costs £920 - up 15pc from the £799 charged at the start of last year.
However the site’s most popular fridge-freezer, a Swan Retro model, is unchanged at £449.
Food prices
Family budgets are feeling the squeeze at supermarket checkouts with food prices rising at their fastest pace since 2013.
Groceries jumped 4.9pc in February as fears mount of a global food price crisis, worsened by war in Ukraine, which is known as the “breadbasket of Europe”.
The ONS figures reveal that prices for meats, dairy products, spreads and condiments are rising fastest in this category. The cost of lamb is up 13pc compared to a year earlier, low-fat milk has jumped 11pc, jams, marmalades and honey have soared 16pc and pasta and couscous is 9pc higher.
Rocketing fertiliser prices, record fuel costs, bad harvests of certain crops and the war in Ukraine rattling grain markets have driven food price inflation higher.
The increases are pinching shoppers at the till. A 420g can of Tesco own-brand baked beans, for example, has risen from 30p to 35p over the past year, an increase of 17pc. Tesco’s 500g unbranded spaghetti is now 70p compared with 53p last summer – a rise of almost a third.
Office workers are feeling the pain of rising coffee prices, with grab-and-go stalwart Pret a Manger raising the price of its coffee subscription by a quarter to £25 a month in February. The chain pinned the increase on more expensive coffee beans and a rising wage bill.
Energy bills
From next week, households will be exposed to an excruciating increase in energy bills, when Ofgem introduces its new price cap.
Wholesale energy prices have soared to record highs in recent weeks, worsening the pain for energy companies that have been unable to pass on higher costs to customers. The cap is set to rise by £693 to an average of £1,971 a year.
The jump could be even more acute at the next review for October’s price cap. As energy prices soared when Russia invaded Ukraine, Investec analyst Martin Young estimated the cap could jump a further 50pc to more than £3,000 per household. Prices are still at similar levels – teeing households up for increases Mr Young said would be “devastating”.
Fuel
Few drivers will have failed to notice the eye-watering prices at the pumps in recent weeks.
Soaring petrol and diesel costs are being driven by higher crude prices as global markets are rattled by the war in Ukraine and bans on Russian oil products by the US and UK.
Brent crude, the global benchmark, has surged 50pc this year and reached a 14-year high of almost $140 earlier this month. Oil prices have cooled but costs on forecourts in the UK have remained stubbornly high.
Petrol costs were up more than 23pc year-on-year in February’s inflation release but the pinch is set to get even worse in March’s figures when prices at the pump set new records.
On Monday, an average litre of petrol was almost 167p while diesel was 179p, according to Experian Catalist.
The cost of filling up the average family car with petrol has jumped to almost £91, according to the RAC.
Paul Dales, chief UK economist at Capital Economics, said: “The recent rise in the average petrol price to a new record high of £1.78 per litre will mean that fuel prices will jump by 12pc month on month in March. That would be the largest increase on record and would add 0.3 percentage points to CPI inflation.”