Negative inflation has come too late to help the poor

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.

cpi index
(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

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.