What rising inflation rate means for your money as grocery prices climb

UK inflation is on the rise again as the knock-on effect of the Iran war begins to affect UK households.

A sharp rise in the annual inflation rate of petrol, diesel and airline tickets helped push the UK’s overall inflation rate to 3.3 per cent in March.

The increases reflect the impact of the Iran war, which began in late February and pushed up crude oil prices in March, thereby increasing refueling costs at the pumps.

Inflation is currently at its highest level since December; The UK is expected to face further price increases in some regions in the coming months.

Here, Independent Take a look at what rising inflation means for your money.

groceries

Chocolate, fish and meat were among the worst offenders, with food and non-alcoholic drinks inflation rising faster than the general inflation rate last month (3.7 per cent).

Ice cream recorded the biggest increase among food products, rising from 1.7% annually in February to 6.3% last month.

James Walton, chief economist at the Institute of Grocery Distribution (IGD), said: “Much of this may be due to cost pressures already present in the supply chain, not the direct impact of events in the Middle East.

“Over time we expect cost pressures on food businesses to increase because the food supply is energy intensive, oil and gas are involved at every stage of the process, and this will be passed down the supply chain and ultimately to food consumers.”

He warned that even if the ceasefire continues, it will not reverse the costs that have already been incurred. “The effects will play out over the coming months. It will move at different rates across various categories, and price changes for salads and fruits and vegetables are likely to move through the system more quickly.”

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The Food and Drink Federation (FDF) has previously warned that grocery inflation could reach up to 10 per cent; IGD predicted a slightly lower peak of 8 percent.

Clothing, flight tickets and more

Inflation is not running evenly across the board, as evidenced by the fact that food prices are rising faster than in other areas.

Prices fell in some sectors.

For example, the average cost of women’s clothing increased by 0.9% year-on-year in March, a smaller increase than the 3% increase recorded in February, while men’s clothing increased by just 0.2%, less than the 1.0% increase recorded in February.

Meanwhile, core inflation, which excludes more volatile factors such as energy and food prices, slowed slightly to 3.1 percent in March from 3.2 percent in February, including a 10 percent increase in airfares directly driven by higher oil costs.

“Core goods inflation remains weak, driven by weak clothing prices, furniture prices, car prices and IT prices, while software prices saw a big fall in March,” said Sanjay Raja, chief UK economist at Deutsche Bank.

Some of these price drops appear to be due to consumers being selective about their purchases and stores reacting accordingly.

“Shoppers have remained cautious and with clothing and footwear prices falling sharply month on month, it appears retailers are being forced to discount to replace stock,” added Susannah Streeter, chief investment strategist at Wealth Club. “Clearly, consumers are tightening their belts as another cost-of-living crisis looms.”

Mortgages

Currently, most economists and analysts think the Bank of England will keep interest rates at 3.75 per cent when it meets at the end of April, with core inflation lower and unemployment slightly reduced.

Adam Hoyes, senior analyst at Rathbones, said the Monetary Policy Committee would feel “a little more breathing room to wait and evaluate its response” but said the mortgage market was moving quickly and regularly even outside of these base rate votes.

But the last few days have brought some relief.

Moneyfacts data shows the average 2-year fixed-rate deal on Wednesday fell to 5.83 per cent from 5.87 per cent on Tuesday, and the average 5-year fixed-rate deal fell to 5.73 per cent from 5.76 per cent. Small changes, but in the right direction for those hoping to renew or step onto the ladder.

Even so, those who have had to renew soon may face large repayment increases; but both Barclays and Skipton cut interest rates on mortgage deals on Tuesday to further stimulate the market.

“Interchange rates are approaching 4 per cent and this has encouraged some of the biggest lenders to cut back,” said Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk.

“Markets are still sensitive to sudden changes, so time will tell how long this situation will last. Home buyers will need to assess their affordability as interest rates could remain high for longer as the Bank of England tries to get inflation back on target.”

Saving

When it comes to cash in the bank, inflation is the most important thing for your money. Rising prices mean that the same pound buys less than before, and the way to combat this is to have an interest rate that is higher than the rate of inflation. Competition remains fierce among providers for your business, so make sure your bank offers a good rate; If not, transfer your money. Do not keep large amounts in a current account without paying interest.

Aldermore slightly raised interest rates on a range of fixed-income savings accounts on Wednesday, now offering 4.45% on an 18-month deal; Moneyfacts data shows that the average 1-year fixed cash ISA rate in the market is currently 4.13%.

The average easy access ISA rate is 2.76%; The average for non-ISA easy access accounts is just 2.47%. Rather than indicating that rates are on the way down, this suggests that some providers are offering terrible rates below both the Bank of England base rate and the inflation rate.

This makes it vital for consumers to either move their money or open a new savings account with a strong interest rate. The best in the market include Trading 212 (ISA) and Chase (non-ISA), which still pay 4.5% or more.

“If inflation rises to 4% and someone’s savings are still earning 3%, they are effectively losing £192 on the average savings pot,” highlighted Kate Steere, Finder’s personal finance expert. “It is therefore vital to always choose a savings rate that is above the headline inflation figure.

“Look through your savings accounts and don’t be afraid to become a book hopper. Loyalty rarely pays off when it comes to savings, as many providers drop your rate after 12 months. To truly grow your cash, you need rates that actually beat inflation.”