The cost of living has increased by 5.4% in the 12 months to December 2021, according to the consumer prices index of inflation (CPI), its highest level since March 1992.
The Office for National Statistics data showed that CPI had increased by 0.3 percentage points compared to November, as higher food and energy bills continued to have an impact.
The version of the consumer prices index that includes owner occupiers’ housing costs (CPIH) rose by 4.8% in December 2021, up from 4.6% in the 12 months to November.
While not a “national statistic”, the retail prices index (RPI) – the measure of inflation which trade unions prefer to reference in pay negotiations – increased to 7.5%, up from 7.1% in November. RPI is now at its highest level since March 1991.
TUC general secretary Frances O’Grady said: “Families are facing a double hit from high inflation and slowing wage growth. They need more help from government.
“The chancellor must come forward with a plan to tackle the cost-of-living crisis. Working people need stronger rights to bargain for fair pay increases. And families need more help with rising bills through universal credit.”
David Collington, principal at professional services consultants Barnett Waddingham, said: “The tide is turning in the UK. With inflation at a 30-year high and wage growth failing to keep up, the cost of living crisis is swiftly becoming the number one priority for employees. Surpassing both political turmoil and Covid concerns, more and more people are now struggling to make ends meet.”
Jack Leslie, senior economist at think tank the Resolution Foundation, said: “Rising inflation means that Britain’s cost of living squeeze will continue to get tighter over the coming months, particularly when energy bills jump in April.”
He highlighted that periods of sustained inflation over 5% will be a new experience for millennials and Generation Z, and a throwback to older generations who remember the 1980s. “The impact of high inflation in terms of shrinking pay packets is becoming wearily familiar to younger workers, who have already experienced three sustained periods of falling real wages in their short careers,” he said.
Pay and inflation
Starting salaries have been increasing, but many sectors are not seeing pay rising for existing employees. Sheila Attwood, pay and benefits editor at XpertHR told Personnel Today this week that 2.5% is a much more realistic median for January 2022 based on private sector pay settlement data collected by XpertHR.
She said that far fewer organisations will freeze pay this year, compared with 2021, but that most pay deals are falling between 2.5% and 4% at the moment.
Collington added that it is vital that employers take note of the shift in the cost of living. “Money worries have a direct impact on mental health – in fact, three fifths (60%) of employees have had financial concerns that cause them to struggle from anxiety, stress and depression. Likewise, poor mental health can make it harder to manage money effectively and feel in control of our financial future.
“It’s important for employers to be prioritising employee wellbeing, not only during periods of economic crisis, but consistently and regularly. Employers have a hugely significant role to play in supporting people’s mental and financial health, and in doing so, they are much more likely to cultivate a healthy and happy workforce that works productively and is loyal to the organisation.”
Glassdoor economist Lauren Thomas said that the proportion of employer reviews discussing inflation in 2021 up 57% on the year before.
“Employees frequently discuss how their pay is failing to keep up with inflation, with many warning potential hires to stay away from companies that refuse to pay in line with ever-rising prices.
“As inflation began approaching new highs in the latter part of 2021, some employees began to specifically reference the rate of inflation, like one employee who wrote, ‘no pay rise is the same as a pay cut when inflation is 4%.’
“Inflation is eating away at wages at rates we haven’t seen in years. Lower income workers are being hit particularly hard, especially as the cost of fuel and electricity rises. If employers don’t want their workers joining the ‘Great Resignation’, they need to pay attention to inflation and increase wages to keep their pay competitive.”