Pay squeeze continues as inflation outstrips wage increases
RPI measure of inflation was 3.2% in July – setting the rate at which rail fares will rise this year
Cash savers continue to see their spending power eroded
The Office for National Statistics has released the latest inflation figures, which can be found here
Laura Suter, personal finance analyst at investment platform AJ Bell, comments:
“Inflation rose to 2.5% in July, marking the 18th consecutive month that it has been above the Government’s 2% target, and an increase on June’s 2.4%.
“Prices were driven higher last month due in part to a rise in transport costs, in turn partly due to a rise in the cost of motor fuels.
“Coupled with this week’s wage inflation figures, which slid to a nine-month low at 2.4% including bonuses, the UK workforce is now failing to make more than the rise in prices each month. This is squeezing households and will in turn have a knock-on effect on consumer spending and the UK’s economic growth.”
“July’s inflation figures are particularly key as they set the annual price hikes for rail commuters, adding to already sky-high fares. Fares will rise by 3.2% from January, following a 3.6% hike in January this year.
“We are nearing the £10,000 commute mark, as the cost of a season ticket from Swindon to London, including tube travel, will rise from £9,448 to £9,750 next year following today RPI figures.
“Commuters already paying high costs on popular routes will face further hikes, for example the commute from Oxford to London, including a London travelcard, will breach the £6,000 mark – rising from £5,932 to £6,122, while the commute from Macclesfield to Manchester will exceed £2,600– rising by £82 a year to £2,629.
“The Office for National Statistics has branded the RPI measure of inflation as ‘flawed’ with ‘serious shortcomings’ and does not recommend it being used, so it remains baffling as to why the Government continues to clobber everyone with price hikes based on an inaccurate measure.
“The fact that CPI is used for hikes that benefit Brits, such as state pension increases, tax credits or public-sector final salary schemes, while RPI is used for price hikes on rail fares and setting interest rates for student loans beggars belief. There is no logical justification for RPI’s continued use, and the Government’s insistence on using whichever measure best suits it should end.”
Savers hit with double whammy
“The high inflation figures continue to clobber savers who are in many cases losing money on their savings in real terms. No easy-access savings accounts pay anywhere near as much as inflation, and banks stubbornly refuse to pass on all of the interest rate hike announced by the Bank of England earlier this month.
“Cash savers can find better deals by using high interest current accounts or regular savings accounts, although these often have caps on balances and require the transfer of direct debits. However, a few minutes spent shopping around for a better deal can stop savers’ money being eaten away by inflation.”