Savvy Money: For low earners the inflation rate is well above 2.9%

Essentials such as energy and food are going up faster than prices generally, while wages stagnate

Last month inflation rose to 2.9 per cent, the highest annual rate for over a year. That's using the Government's preferred measure, the consumer prices index.

The retail prices index, which used to be the way we measured rising prices, was even higher at 3.3 per cent (up from 3.1 per cent in May).

Wages flatlining

At risk of "rate of change" overload, I'll give you one more figure, and that's the rate at which wages are rising.

The average annual rate is 1.3 per cent, according to the Office for National Statistics. So the wages of most people (except senior executives, bankers and possibly soon MPs) are falling in real terms.

Petrol prices rise again

One of the main culprits for the rise in the inflation rate was an increase in the price of petrol and diesel.

Even though it isn't rising by as much as it did a couple of years ago, it was up by a penny (compared with a fall of over 4p in June last year).

And at around £1.37 a litre for petrol (the price my local garage is selling it at), you won't get much change out of £75 if you fill up a medium-sized car, never mind a people carrier or gas guzzler.

Incidentally, in Venezuela it would cost me less than £1 to fill up my car. Not sure it's reason enough to move though …

Inflation low – or is it?

Of course, compared with inflation rates of up to 25 per cent in the 1970s, it all sounds like small beer. Except that for many people, and especially older people and those on a lower income, the inflation rate is nothing like 2.9 per cent.

If you spend more of your money on gas, electricity and petrol/diesel, your personal inflation rate will be higher.

Longer-term trends

Looking over the longer term, the ONS says the cost of energy, housing, water, and food and non-alcoholic beverages make up over half of the 12-month increase in prices in the past five years.

Tullett Prebon, the broker, has produced an "essentials index". It found that in 2012, the cost of essentials rose by 3.7 per cent, compared with 2.8 per cent for CPI.

Over a 10-year period, the price of essentials has risen disproportionately faster than other items. CPI increased by 29 per cent and wages by 36 per cent between 2002 and 2012 (most of the wage rises were pre-credit crunch).

In every year since 2007, the cost of essentials has risen faster than wages. For example, between 2007 and the end of 2012, the price of gas and electricity rose by 46 per cent, petrol and oil by over 56 per cent and food by 30 per cent (wages were up by 10 per cent).

Not surprising that many people are struggling.

Falling pensions payouts

It's not just rising prices that affect the amount you have to spend.

Wages may only be rising very slowly, but pensioners who have to buy a retirement income with an annuity have seen rates fall sharply in recent years.

And that often means a lower income for the rest of their lives (women have been slightly cushioned from the full impact as they benefited from a change in the rules in December which meant gender couldn't be taken into account).

Savings rates at rock bottom

Meanwhile, savings rates have been decimated. A quick scan of the best buy tables (not sure they should be called that any more) shows that you'll struggle to get more than 1.75 per cent on an easy-access savings account.

And if you take the bold leap of locking your money into a fixed-rate savings account for five years, you'll only earn an extra 1 per cent or so. No laughing matter if you're relying on that income to pay your bills.

Verdict

Headline inflation figures can be a useful broad brush indicator of what's happening to prices, but do not reflect the increases in the cost of living experienced by many people.

Even if you take inflation figures at face value, savings accounts that pay out more are thin on the ground.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
i100

Other places that have held independence referendums
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
PROMOTED VIDEO
News
news

Sport
footballThe latest scores and Twitter updates from tonight’s games, featuring Bayern Munich vs Man City and Chelsea vs Schalke
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
News
peopleThe Times of India said actress should treat it as a 'compliment'
Arts and Entertainment
Jack Huston is the new Ben-Hur
film

It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959

News
news

Watch this commuter wage a one-man war against the Circle Line
Property
Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's starring part
Extras
10 best table lamps
indybest
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week