The pace of inflation is picking up, and it seems fuel is one of the main culprits driving price increases.
Here’s what’s going on right now with petrol pricing and what this inflationary pressure could mean for your money and savings.
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What is going on with inflation?
Inflation is the rate at which prices are increasing. In the UK, we use the Consumer Price Index (CPI) to measure this. According to this measurement, inflation hit 2.5% in June, which is noticeably higher than the expected rate of 2.2%.
This is the highest level inflation has reached since October 2018. The Bank of England is now expecting it to hit 3% before a pullback.
It appears that some areas have had a more significant impact than others when it comes to rising prices.
What is pushing up inflation figures?
A combination of the following sectors are contributing heavily to price increases:
- Fuel
- Second-hand cars
- Clothing and footwear
- Eating and drinking out
Each of these areas is being impacted in different ways, mostly due to the ongoing repercussions of the coronavirus pandemic.
Sarah Coles, personal finance analyst at Hargreaves Lansdown explains what’s happening to the price of petrol: “The cost of filling up the car has driven the biggest rise in inflation. It’s up 20.3% in a year, which is a faster rise than we’ve seen for more than a decade (since May 2010).
“Average petrol prices have risen from 106.5p per litre last June to 129.7p per litre. Petrol hasn’t been this expensive for almost three years – since October 2018.”
Why are there price increases in these areas?
There are a number of reasons why the areas listed above are seeing price inflation:
- The amount we pay for fuel is going up because of crude oil prices, supply disagreements and price hikes to make up for a lack of sales over the last year.
- Second-hand cars are highly sought after due to pent up demand, a reluctance to use public transport and a global semiconductor shortage that’s affecting the production of new cars.
- Material and labour costs in conjunction with the unusual timing of discount sales last year means that clothing and footwear prices are rising right now.
- Finally, when it comes to eating and drinking out, supply chain issues, rising wages and making up for lost revenue are making it more costly to enjoy hospitality outside the home.
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What’s next for prices?
Most opinions are split when it comes to where prices will go next.
Sarah Coles describes the two sides for the potential next page in this inflationary chapter: “Inflation prediction is always a thorny business, and there are some indications that we could be seeing the beginning of an inflationary cycle, as commodity price increases have now fed through into factory gate prices, which in turn could then feed into price rises.
“There’s also the chance that the pandemic hasn’t delivered the last of its nasty surprises. If new variants mean closures and restrictions, it could wipe out most of the inflationary pressures overnight, and inflation could drop back even sooner than expected.”
How can you beat inflation?
Right now, even the best savings accounts are offering rates that are nowhere near the level of inflation.
This means that your money could lose value over time whilst sitting in an account that earns a small amount of interest. So it’s important to keep an eye out for the best rates possible.
If you’ve got a decent emergency fund and some cash savings, it’s also worth thinking about investing some of your funds. You can do this using something like the Hargreaves Lansdown Fund and Share account. It will mean taking more risk with your money, but it will give you a better chance of beating inflation in the long run.
