Brits Revealed To Be Struggling With True Cost Of Inflation

Rising living costs are increasingly burning a hole in consumers’ pockets and purses, it has been suggested.

In research carried out by the Motley Fool as part of its bi-annual inflation study it was revealed that increases in the cost of living for “real people” are surging at an annual rate of eight per cent. Such a figure, the firm pointed out, is significantly behind data released by the Office for National Statistics which reported that the consumer price index (CPI) is currently at three per cent. This represents an increase from the 2.5 per cent recorded in April. It was stated that the drive in the CPI – which the government uses to adjust wages – was a result of increases in cost for electricity, gas and heating oil.

Due to such a difference between the Motley Fool’s inflation index and the CPI, it was reported that household incomes will continue to lag behind the rising cost of living. At present it was stated that the average consumer is putting one pound out of every 50 away for use in later life. And unless action is taken to counteract this, the personal finance publication reported that in addition to having less disposable money, many people will have to borrow or withdraw cash from savings accounts in an attempt to make ends meet. Furthermore, the Motley Fool predicted that within four years the typical British household may be facing a shortfall of 8,000 pounds in their annual family budget.

In facing dramatic increases in the cost of living, it may be possible that consumers find their capacity to manage the varying demands on their spending is coming under more pressure. This may have an impact upon their capacity to make repayments on mortgages and personal loans, service store and credit card debts, transport expenses and meeting the cost of utility bills.

Commenting on the figures, David Kuo, head of personal finance for the Motley Fool, stated: “The erosion of the amount of money we save each year strongly suggests the true rate of inflation is gradually crippling household budgets. The gap between what we earn and what we spend means we have less money to put away. But as the hole turns into a chasm, we are required to patch up the deficit with money previously salted away. However, a point is reached when the gulf can’t be bridged.”

The personal finance publication went on to report that it is important for people to take the time to monitor their household spending to ensure that they do not succumb to the government’s “inflation trap”. Mr Kuo added: “Just because someone calls the tail on a dog a leg, it doesn’t make it a leg. Pause and think – a dog still only has four legs and a tail.”

For consumers worried about their ability to manage their finances over the remainder of this year in the face of rising living costs, applying for a loan might be advisable. However, those who have difficulties with debts in the past but are confident about their current capacity to make repayments may find that a bad credit loan could be of assistance. By selecting such a loan it may be possible that borrowers can manage tax costs, credit cards and other demands. This could be particular help after Unbiased’s recent Tax Action report revealed that a record 9.3 billion pounds in unnecessary tax payments will be made in 2008.

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