Liam Halligan: How much worse can the cost of living crisis get?

Well don’t say we didn’t warn you. When On The Money launched in September, our very first edition stated “Inflation is back – and there’s a lot more to come".

Now it has come to pass.

It brings me no pleasure to report the Consumer Price Index in December was 5.4 per cent up on the same month in 2020 – with inflation now at a 30-year high.

Average wages, meanwhile, grew just 3.8 per cent – with pay going us slower than prices, so our spending power is falling. The cost-of-living squeeze which On the Money has warned about for months is now most definitely upon us.

Dig into the data, in fact, and inflation is even higher than the headline numbers.

PRICE PRESSURES – December 2021

CPI Inflation – 5.4%

RPI Inflation – 7.4%

PPI Inflation – 13.5%

SOURCE: Office for National Statistics

Now, for my money, RPI inflation is by far the more relevant number. When phone companies raise contract prices, trains companies increase fares, when local councils set rent paid by low-income council house tenants, they tend to link those increases to the RPI.

And RPI, as we can see, is already at 7.4% - even higher than the headline CPI measure.

On top of that, PPI inflation – the cost of the inputs used by firms, wholesale inflation if you like, is already deep into double digits. So headline inflation is the highest in three decades. But on the ground inflation is, in my view, even higher.

All these numbers are backward looking, referring to December price pressures. In the weeks and months ahead, higher costs for firms will push up prices in shops further.

Plus, rising household fuel bills are set to get even higher when the new energy price cap kicks in in April.

I’m an optimist – and On The Money celebrates all that is good about British business. But these inflation numbers are worrying - and set to get higher still.

Politics is febrile – with the media focussed on whether Boris Johnson can cling on. But what really matters, to my mind, is the living standards of millions of people up and down the country.

And that’s were posing this On The Money question:

The Cost of Living crisis: How much worse can it get?