The reduction in real terms incomes for those at the bottom of the pile will take many years to replace
Inflation as measured by the Consumer Price Index (CPI) has turned negative in the UK for the first time since 1960, standing at -0.1 per cent for the last quarter.
Bank of England governor Mark Carney believes that this will give a boost to household finances and should enable interest rates to remain low for the rest of this year. Carney commented:
“We expect inflation to be very low over the next few months. But over the course of the year as we get towards the end inflation should start to pick up towards our 2 per cent target.
“The British people should enjoy this period of very low energy prices low, very low food prices. Enjoy it while it lasts.”
This complacent outlook, however, signally fails to recognise – wilfully or not – that escalating living costs and stagnant incomes in the UK since the financial crisis hit in 2007, have eroded real incomes and the purchasing power of UK households: especially those at the bottom of the income distribution.
(Click to enlarge)
The chart lays this complacency bare. While CPI ran at 18.9 per cent from 2008 onwards, the rising costs of household essentials like fuel, food and water were significantly higher at 47.3 per cent, 31.5 per cent, and 30.7 per cent respectively for the same period.
Since household essentials take a greater share of spending for low incomes households, the higher inflation associated with these goods and services bites deeper into incomes already denuded by benefit caps, wage stagnation and the growth of ‘zero hours’ working.
Of course the slowdown of inflation for household essentials will provide some relief for people on low wages and benefits. But the reduction in real terms incomes for those at the bottom of the pile since 2007 will take many years of wage and benefit growth to replace.
With no signs of wages pick-up in the bottom quartile of the income distribution, and £12bn more welfare cuts to come, this seems unlikely. Perpetual poverty seems the best that low income people can expect.
Kevin Gulliver is director of Birmingham-based research charity the Human City Institute and chair of the Centre for Community Research. He writes in a personal capacity
19 Responses to “Negative inflation has come too late to help the poor”
GhostofJimMorisson
into incomes already denuded by benefit caps, wage stagnation and the growth of ‘zero hours’ working.
You forgot to mention – or chose to ignore – the impact of low-skilled EU migrants on the lowest paid, and the fact that many employers are using zero-hours as a means to get around EU Agency Workers’ Regulations.
stevep
” The rich man in his castle, the poor man at his gate, God made them high and lowly and ordered their estate……… All things bright and beautiful……….” still says all one needs to know about the British class system and how one should know one`s place.
A compassionate Christian God (if you favour religion as your opium) has got nothing to do with it, Cameron has got plenty. Tax cuts, incentives and subsidies for the man in his castle and permanent austerity, low wages in fragile jobs, the bedroom tax, uncertain healthcare provision and desperation for the poor man at his gate.
James Chilton
Inflation is actually the friend of the poor. If there’s enough of it, they can pay their debts without mercy.
David Davies
How can `inflation’ be negative?
GTE
Brown set the inflation target too high then. Lets put that down to another Labour mistake.