Cost of Living Bill: economic background

2. Wider inflationary pressures

As set out above, households are facing very large increases in fuel bills despite the mitigation payments, and will therefore need to use more of their household income to pay their energy bills. However, this impact is being felt at the same time as a large increase in other types of inflation. CPI inflation, which averaged 4% in 2021-22, has accelerated to 10% in August 2022. Although the Energy Price Guarantee has caused commentators to revise down their estimates for a peak of measured inflation of well over 10% in the short term, they still expect an extended period of high inflation, with, for example, the Resolution Foundation forecasting that inflation will remain around double digit levels throughout Winter 2022/23.^[4]

As Figure 1 shows, although the increase in energy prices is a particularly important contributor to high levels of inflation, there are inflationary pressures across all goods and services, with very high levels of inflation affecting other types of necessities, such as food (13%), transport (12%) and clothing (8%). As a result, even excluding energy, CPI inflation was 7% in August 2022.

Source: ONS, Consumer price inflation, August 2022.