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WTF is rising inflation and what does it mean for young people?

This is fine x

Today, it was announced that UK inflation has hit a 40-year-high of 9 per cent in April, up from 7 per cent in March. To put this in perspective, the target inflation rate is just 2 per cent. It’s going to get worse too, as Bank of England governor Andrew Bailey warned last week that inflation is set to rise again to 10.25 per cent later this year.

Basically, energy prices are rising, food prices are rising, average pay increases aren't enough to offset these increases, and experts reckon we’re heading for another recession. Cool x

When it seems like there’s a new headline every day about how fucked the economy is, it can be difficult to process what’s actually happening and how it’ll effect your everyday life. Here, we break down exactly what rising inflation means and how it’ll impact young people.

What actually is inflation?

Inflation refers to a general rise in the level of prices.

You may not notice inflation from month to month, but over the course of a year, prices can increase quite dramatically. For example, According to the Office for National Statistics (ONS), over the past year food prices have risen by 6.8 per cent, with the cost of takeaways and snacks rising by 6.5 per cent.

The ONS figures out the rate of inflation by checking the prices of a whole range of items that most people usually buy, such as loaf of bread and a bus ticket. The cost of all the items in this ‘basket’ tells us the overall price level – this is known as the Consumer Prices Index or CPI.

To calculate the rate of inflation, the ONS compare the cost of the basket – the level of CPI – with what it was a year ago. The change in the price level over the year is the rate of inflation.

Why is inflation rising?

So, the economy is fucked, got it. But why does this happen?

Inflation can rise for a variety of reasons, but we can attribute this recent rise to a cluster of factors: mainly Brexit, the pandemic and the Ukraine war.

It all comes down to a very simple economic principle: supply and demand. Essentially, the harder it is to get hold of goods, the more expensive they become. As a result of Brexit and COVID-19 supply chains have been disrupted, which has caused prices to increase. This has been compounded by the Ukraine war, which has led to a shortage of cooking oil and wheat and also caused oil and gas prices to soar. 

How does it relate to recessions?

Responding to the news that the inflation rate has reached 9 per cent, the British Chambers of Commerce have warned that there’s now a “real chance” that a recession is on the horizon.

A recession is defined as a period of temporary economic decline. In the UK, it’s generally accepted that a recession is when gross domestic product (GDP) falls in two successive quarters.

Essentially, if a country is in a recession, it means their economy is not in great shape.

And how does all this affect young people?

Unfortunately, young people are usually hit hard by inflation, as they’re disproportionately concentrated in low-paid jobs. New research shows that nearly a quarter of young people have had to take on an additional job to make ends meet.

High inflation is also set to cause student loan interest rates to increase, meaning graduates will have to fork over even more of their money to student finance.

People under 30 are also more likely to rent their home than own it: 80 per cent of people in their 60s are homeowners, compared to just only 30 per cent of under-30s. So, if inflation increases, it’ll result in a rent increase and less disposable income for renters, but homeowners won’t have this issue.

Homeowners aren’t entirely out of the woods, though: mortgage inflation will impact those with big mortgages the most and leave them vulnerable to repossession.

Young people are also less likely to have savings, which means they have little cash to use as a ‘buffer’ against an increase in living costs.

The recession will also have a detrimental impact on young people by limiting their job prospects. This is because younger people are overrepresented in sectors that are forecast to see lower employment, such as creative industries, and underrepresented in occupations, which are likely to see the strongest job growth.

According to a new report, the cost to young people entering the labour market in 2021 (in terms of lost earnings and damage to employment prospects) is forecast to be £14.4 billion over the next seven years.