Just when we thought the cost of living crisis couldn’t squeeze us any harder, it has been announced that prices are currently rising at their fastest rate for more than 40 years, with prices rising 10.1% in the 12 months to September.

Inflation has now returned to double digits after a slight dip to 9.9% in August, with the annual rise in food and drink prices now at almost 15%, the fastest annual jump since April 1980.

As businesses and consumers are experiencing huge financial pressure across bills, household items and food, it’s certainly a worrying time. But what does inflation actually mean? And how are the rises impacting us day to day? Stylist breaks it down.

What is inflation?

According to the Bank of England, inflation is the term used to describe rising prices. How quickly prices go up is known as the rate of inflation. Inflation is calculated by the Office for National Statistics, which records the cost of over 700 things that people regularly buy, such as loaves of bread and bus tickets, as well as larger items like cars or holidays.

To calculate the rate of inflation, they compare the cost of the basket with what it was a year ago, and the change in the price over the year dictates the rate of inflation.

Over the past 12 months, energy bills have risen rapidly because of high oil and gas prices, as has the price of petrol, diesel and food as the war in Ukraine squeezes production and costs. 

Earlier this year, Money Saving Expert Martin Lewis warned of “financial cataclysm” as he predicted that further gas and electricity bill price rises this autumn would require the provision of “warm spaces in public buildings” such as libraries, where people who can no longer afford to heat their homes can find shelter.

His later open video letter to the Conservative leadership candidates painted an increasingly bleak picture. Despite the government announcing a financial package of cost of living measures, the £400 grant to help with energy bills has already been swallowed up by predicted increases in the price cap, Lewis explained.

And while government support to cap the average household energy bills at £2,500 from October stopped the higher Ofgem price cap from coming into place, Jeremy Hunt’s decision to cut the scheme earlier than planned could leave households facing an average bill of £4,347.

How does inflation impact our day to day lives?

Alongside increasing the cost of goods, price inflation often outstrips growth in wages, leading to below-inflation pay rises. Living standards think tank The Resolution Foundation has also stressed that the poorest households are hit hardest, as the shortfall in people’s incomes to pay for vital essentials like food leaves them more vulnerable to inflation.

Research from national poverty charity Turn2Us reveals almost half its users (47%) report being left with nothing to live on each week after paying for housing, council tax and utility bills.

The problem is especially severe for those with a disability or chronic illness, who are reliant on benefits that are not keeping pace with the rising cost of living, amid widespread cuts and a welfare system struggling to properly meet demand.

“With inflation reaching 9.4% and wiping out pay increases, the cost of living crisis is only worsening and no time can be lost in preparing the country for profoundly difficult months to come,” explains Rebecca McDonald, chief economist at the Joseph Rowntree Foundation.

“Just last month we found that about 7 million households have already missed out on essentials like heating, toiletries or showers because they couldn’t afford them. Now the cost of essentials such as food is rising again and more people than ever are enduring a year of financial fear.”

A spokesperson for Turn2Us said that the news would “no doubt cause huge concern and worry for people across the UK who are already struggling to afford the essentials”.

“Many of us are already cutting back on energy usage and even turning to food banks to get by. The reality is, this increase is going to plunge thousands more people into financial insecurity and those on the lowest incomes will be unable to afford the basics needed to live.”

Both the Joseph Rowntree Foundation and Turn2Us agree that intervention is urgently needed to catch people before they fall into crisis in the months to come, and that the government must ensure that, as a minimum, benefit levels are increased to meet the true cost of living so that money is not taken away from people at a time when they need it most.

What is being done about it?

Despite the devastating numbers, a minister for the treasury said the government is confident it will see a “marked improvement” in 2023.

Responding to inflation figures in July, the then-chancellor Nadhim Zahawi said he recognised there were risks to public finances, including from soaring inflation, adding: “That’s why the government has taken action to strengthen the public finances, and in their latest forecast the Office for Budget Responsibility (OBR) assessed that we are on track to get debt down.”

However, campaign groups and opposition politicians say this isn’t enough.

“A simple thing the government can do now is to stop deducting debt repayments from benefits at unaffordable rates, which leaves too little to cover the essentials at the best of times,” suggests the Joseph Rowntree Foundation.

“All those putting themselves forward to lead the UK should pledge to increase basic Universal Credit entitlements to ensure that our social security system always, at a minimum, enables people to afford the essentials when they fall on hard times.”

If you are concerned about money or are struggling with debt, charities like StepChange and Turn2Us provide free and impartial financial advice. 

Images: Getty