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”
Mike Stallard
One final comment.
I left the Anglican Church because a very great deal of what you say above applied to it.
I am now a very happy Catholic. I simply do not recognise the picture you paint.
Mike Stallard
I’ve only just read it!
The deserving and the undeserving poor!
We pay for both, don’t we.
stevep
That`s great if you have found happiness and meaning in your life. With respect to religion, simpler usually means better (As with most things in life). Thank you for engaging in a lively and interesting debate, if only more people could be bothered!
Love, Peace and Happiness!
Johnny Good
Consumer spending helps keep the economy buoyant. If we all decide to hold on to our money and stop buying wardrobes, for example, then that wardrobe factory production slows, they produce and sell less goods, they have to enforce pay freezes, that meaning their workers have less money to spend in the economy, and eventually enforce them to choose online payday loans direct lender only. ‘Good’ inflation is a sign of a healthy, growing economy with corresponding rising wages, and it helps to erode debt, particularly good news for those wishing to borrow, not least governments.