What Has Caused the Increased Cost of Living?

1 June 2022|Related :

The government is under heavy pressure to tackle the cost of living crisis in Britain as global inflation is at its highest since 2008 and the cost of living continues to soar. But what has caused all of this and what is the government doing to battle the crisis? Let’s find out.

Increased Oil, Energy and Petrol Prices 

The largest contributor to the current cost of living crisis is the rising cost of oil and therefore energy and petrol costs. 

Back in 2020, the price of a barrel of crude oil was around $40, however, as a result of the coronavirus pandemic affecting supply and demand, oil costs more than doubled in 2021.

After a brief decrease in prices towards the end of the year, the cost of a barrel was $79 in January 2022, however, this sharply rose to $92 by the end of the month.

Prices were once again affected after Russia invaded Ukraine on 24th February and Russia’s oil exports were sanctioned, causing the cost of a barrel to increase even further to $105-$139 at the start of March.

How Do Oil Price Increases Affect Petrol and Energy Costs?

These rising oil prices directly impact the cost of petrol and energy and with many European countries previously relying on Russia for oil now sourcing it from other countries, the demand has gone up, causing the prices to soar.

This has led to petrol prices as high as £1.79 per litre, making car running costs incredibly high. Additionally, these high oil prices have also led to an increase in energy prices, making the cost of home heating unaffordable for many.

Shortages of Goods

The price of lots of everyday consumer goods has gone up significantly during the pandemic after people stuck at home during the lockdowns made purchases on goods and home improvements that they wouldn’t typically spend money on.

The problem was that manufacturers from around the world also endured a number of lockdowns and struggled to keep up with the demand for all of these goods, leading to a shortage of materials such as plastic, concrete and steel.

A shortage of microchips meant that the manufacturing of many cars, computers and other household goods were delayed, causing prices of these items to rise.

Shipping Costs

Global shipping companies have been overwhelmed by rising demand following the pandemic. This has meant retailers have had to pay higher prices to get goods delivered to their stores and in turn, these prices have been passed onto customers.

In 2021, sending a single 40ft container from Asia to Eruope cost around £1,101. Now it costs around £12,480.

Trade Barriers

New post-Brexit trading regulations are estimated to have reduced imports from the EU by around 25% in the first half of 2021, leading to shortages and much higher demand for certain goods. 

This demand has resulted in cost increases in a number of products and their shipping costs which have been passed onto customers.

The End of Pandemic Support

During the pandemic, public spending and borrowing increased when the government offered support for businesses and individuals. However, this has led to tax rises that are contributing to the higher cost of living, despite people’s wages remaining unchanged.

As support measures come to a close, economists suggest that inflation could be pushed even higher.

Business Support During the Cost of Living Crisis

For more of the latest financial advice and updates, check out our handy blog. Alternatively, if your business is struggling to cope with the cost of inflation, reach out to our team at Ryans today to discuss how we can help you.

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