Wednesday, Dec 7, 2022
International Finance
Economy Magazine

Prices rise: What people are cutting back on to save money?

IFM_ Prices rise
From food to fuel, there has been an increase in rates of every essential product, something that has not been this high in the last 30 years

Prices rise: What people are cutting back on to save money?
As there is a steady rise in the prices of various commodities, households across the UK are worried about how to deal with the rapid surge, claims a BBC survey. From food to fuel, there has been an increase in rates of every essential product, something that has not been this high in the last 30 years. As a result of which people are responding to the price rise by cutting back. BBC spoke to many people across the UK to determine how they are adapting to this situation. Most of the respondents claimed to have cut down on food, clothing and travel.

 Food
The most essential aspect of human life – food, is one of the top picks for many. In the UK, many have cut down on food as they feel that it has been a major reason for burning a hole in their pockets. Paul and Amanda shared their concerns about having to spend on food and how restricting the purchase of food has become the need of the hour. They claim that despite the fact that once in a while they do opt for takeaways and go out for meals, it’s not a regular affair like how it was in the past.

“We’re just more mindful now, of expenditure,” Amanda said.

They have also restricted themselves from purchasing branded products and are looking out for good deals and own-brand items. Paul said, “We can’t just go in there and buy what we like now, we have to think, Well, hold on a minute.”

“We have to look at: What do we really want? What do we really need? Do we really need that luxury? Do we really need those sweets?”

Paul, who has been shopping around and buying products in bulk, claims that he has a reason for doing so.

“Just to make sure that if we buy this now, that will last a month or two,” Paul said.

And it has not only been just Paul and Amanda, but about two-thirds of people have been consuming less food than before, while many have cut down on their takeaway meals. More than half the people who took part in the survey claimed that they had skipped meals on multiple occasions in the past six months to save money. Meanwhile, grocery analysts have predicted that food prices will rise this summer due to soaring costs.

Institute of Grocery Distribution (IGD) said that the prices are expected to increase by 15% as households usually spend money on staple food like bread, meat, dairy, fruits and vegetables. IGD also warned that the more vulnerable people will skip meals. Prices would rise faster for longer than the Bank of England estimates, it predicted. The IGD, which provides analysis to major grocers, said due to the Ukraine war the United Kingdom was facing the highest cost of living pressures since the 1970s. Both Ukraine and Russia contribute to nearly a third of global wheat exports. Russia’s invasion of Ukraine has resulted in increasing grain prices.

The cost of products such as bread, which is derived from grains, and chicken, which is fed on grains is expected to increase, according to IGD. As chickens hardly take a few weeks for their growth, the price rise will be felt by the consumers sooner. The driving fuel costs also will push the food prices higher. In addition, the price of fertilizers has nearly tripled since last year. As a result of the invasion, the roads, ports, and warehouses in Ukraine have been heavily damaged in the war. Due to this, the volume of exports will be reduced for years to come, IGD said, piling up pressure on supplies of wheat and sunflower oil.

At least two-thirds of the people on the Seasonal Agricultural Workers scheme last year were from Ukraine, but this year, Ukrainian men have been told to stay and fight against Russia. The new workers need training and as a result of which those costs will feed into price rises, IGD said. Since the UK gets around 40% of its food from other countries, it is well exposed to global food price rises.
Adding more worries, since Brexit, European Union producers are less likely to prioritize their customers in UK. IGD stated that higher inflation could last longer than expected if there are more bans on food export or trade disruption because of Brexit border arrangements in 2023.

Clothes
After food, the next thing most people spend their money is on clothing. Thanks to the recent price rise in her food, electricity, and gas bills, Rebecca says that her family’s shopping habits need to take a cut.

“We know the further rise in gas and electricity is coming in October, so we’re just trying to get into good habits now,” said Rebecca.

Despite Rebecca never being a “big spender” on her fashion needs, her daughter Jess is exactly the opposite.

“We have to rein back the amount of money that we’re spending on clothes. We have to make sure we’re making the most of what we’ve got, as opposed to going out and buying new,” she said.

Much to Rebecca’s relief, her daughter’s school will be providing free school uniforms. BBC cost of the living survey suggests that in the last six months, three-quarters of people have cut down on their clothing shopping expenses and nearly half of them have shelled out less money for their children’s clothing.

Travel
Georgia feels that she can save money by spending a day out at Birmingham’s Cannon Hill Park rather than shelling out extra bucks by taking her daughter Harper-Faye to a visitor attraction.

“I haven’t got the money to go to Sea Life Centres and stuff. That’s like, GBP 25 a ticket,” Georgia said.

As far as travel goes, she claimed that she is not taking her car out as much as did in the past.

“The diesel [price] is absolutely crippling me. I can’t go out as much as I used to, not a chance. I can’t afford it. I need to make sure I can get to work and back, and that’s my priority at the moment,” she added.

Echoing similar views, Lisa, a disabled power chair user who lives near Ashford in Kent, also claimed that she’s cutting back on her car use due to the rise in fuel rates.

Lisa said, “I am having to choose whether I can afford to go out. I have a wheelchair-accessible vehicle, but obviously, fuel is really expensive, so I’m having to make choices on how often I can afford to go shopping – just to get to the shops, let alone affording the price rises once you get there as well.”

The BBC survey revealed that nearly two-thirds of people have restricted their travel and trips. With all the three aspects coming into play one could say that it’s going to be a rough ride ahead for everyone.

UK interest rates increased to 1.25% by the Bank of England. Due to the pace of soaring prices, the Bank of England has further increased the interest rates. The interest rates, which are the fifth consecutive rise, have increased from 1% to 1.25%, which has pushed them to the highest level in 13 years.

This has come at a time when the cost of living is increasing with every passing day. Inflation is currently at a 40-year high of 9%, with the Bank warning that it could surpass 11% later this year.

Where inflation is the highest and lowest?
The average annual inflation rate in the first quarter of this year was at least twice what it was in the first quarter of 2020, as COVID-19 was beginning its deadly spread. In 16 countries, first-quarter inflation was more than four times the level of two years prior. (For this analysis, Pwe Research used data from the Organization for Economic Cooperation and Development, a group of mostly highly developed, democratic countries. The data covers 37 of the 38 OECD member nations, plus seven other economically significant countries.)

Among the countries studied, Turkey had by far the highest inflation rate in the first quarter of 2022: an eye-opening 54.8%. Turkey has experienced high inflation for years, but it shot up in late 2021 as the government pursued unorthodox economic policies, such as cutting interest rates rather than raising them.

The country where inflation has grown fastest over the past two years is Israel. The annual inflation rate in Israel had been below 2.0% (and not infrequently negative) every quarter from the start of 2012 through mid-2021; in the first quarter of 2020, the rate was 0.13%. But after a relatively mild recession, Israel’s consumer price index began rising quickly: It averaged 3.36% in the first quarter of this year, more than 25 times the inflation rate in the same period in 2020.

Besides Israel, other countries with very large increases in inflation between 2020 and 2022 include Italy, which saw a nearly twentyfold increase in the first quarter of 2022 compared with two years earlier (from 0.29% to 5.67%); Switzerland, which went from ‑0.13% in the first quarter of 2020 to 2.06% in the same period of this year; and Greece, a country that knows something about economic turbulence. Following the Greek economy’s near-meltdown in the mid-2010s, the country experienced several years of low inflation – including more than one bout of deflation, the last starting during the first spring and summer of the pandemic. Since then, however, prices have rocketed upward: The annual inflation rate in Greece reached 7.44% in this year’s first quarter – nearly 21 times what it was two years earlier (0.36%).

Annual U.S. inflation in the first quarter of this year averaged just below 8.0% – the 13th-highest rate among the 44 countries examined. The first-quarter inflation rate in the U.S. was almost four times its level in 2020’s first quarter.

Regardless of the absolute level of inflation in each country, most show variations on the same basic pattern: relatively low levels before the COVID-19 pandemic struck in the first quarter of 2020; flat or falling rates for the rest of that year and into 2021, as many governments sharply curtailed most economic activity; and rising rates starting in mid- to late 2021, as the world struggled to get back to something approaching normal.

But there are exceptions to that general dip-and-surge pattern. In Russia, for instance, inflation rates rose steadily throughout the pandemic period before surging in the wake of its invasion of Ukraine. In Indonesia, inflation fell early in the pandemic and has remained at low levels. Japan has continued its years-long struggle with inflation rates that are too low. And in Saudi Arabia, the pattern was reversed: The inflation rate surged during the pandemic but then fell sharply in late 2021; it’s risen a bit since, but still is just 1.6%.

Inflation doesn’t appear to be done with the developed world just yet. An interim report from the OECD found that April’s inflation rate ran ahead of March’s figure in 32 of the group’s 38 member countries.

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