Inflation to Reach 2.4% by December 2023

Author: Samuel Beckingham
Updated: Sep 21, 2022
5 minutes read

We are currently experiencing a cost of living crisis, largely in part due to the cost of food and the increased reliance on fossil fuels. The increase in prices has been accelerating at nearly the fastest rate experienced in the last 40 years.

Inflation currently sits at 9.9%, which although below July’s peak of 10.1%, is way above the Bank of England’s 2% target.

The main contributor to the massive spike in inflation has been Russia’s war with Ukraine. Not only this, but there have been additional factors, including:

  • Energy prices

  • Petrol and diesel prices

  • Food prices

  • Used car prices

  • Raw materials, household goods and hospitality furniture

  • Higher interest rates (affecting mortgage payments)

The Bank of England’s tool for keeping inflation in check is the interest rate and while this curbs inflation, there’s only so far this can go when external influences are affecting prices. It usually acts as a means to stop people from borrowing and spending and encourages people to save.

Here’s a look at some of the highest and lowest increases in food item costs over the past year.

Data from the Office for National Statistics

We can see that milk has had a dramatic price hike in the past year, with low fat milk 40.4% pricier and whole milk 29.4%. Butter also went up by nearly 30%, but some of the least affected items include chocolate (increased by 3.8%) and confectionery (2.7%), which sit at the bottom of the scale.

What’s more, wages haven’t been keeping up with inflation. Despite raising by 5.2% earlier this year, with inflation taken into account, it actually works out as a decrease in wages by 2.8% over the same period.

While unions have been striking more because they want wages to reflect the cost of living, the governor of the Bank of England argues that wage setting pushes inflation even higher. Inflation gets embedded and worsens the problem, but what are workers expected to do when their buying power keeps getting worse?

Before Liz Truss’ intervention in the energy crisis, some estimates expected inflation to get to 14% and peak at 18% next year, but there have been encouraging signs that this won’t be the case.

Oil and food prices have started to fall and the Energy Price Guarantee will put a halt to rising energy costs to households. Goldman Sachs now believes that inflation will peak at 10.8% in October and be down to 2.4% by December next year because of these changes.

It’s worth noting that lower inflation doesn’t mean lower prices; it means prices will stop rising so fast.

Beat Wage Setting

If you’re worried about how your buying power has been reduced because of the cost of living, why not see if you’re eligible to claim any money back?

Packaged Bank Accounts

If you’ve taken out a packaged bank account that you’ve been paying a monthly fee for but haven’t made use of any of the perks on offer, you could be due a refund.

Find out more about packaged bank accounts.

Plevin PPI

If you had a PPI claim in the past, you may be owed more money in undisclosed commission when you took out the policy.

Read more about Plevin PPI here.

Mis-sold PCP

If you’ve had a car on PCP finance, there’s a chance you may have been charged more interest than agreed or misled about extra costs.

Find out about mis-sold PCP.