Covid lockdowns meant 2020 was a year to forget for the film industry and the movie-watching public.
ut this year will see a steady stream of much anticipated sequels being released such as Top Gun: Maverick, Mission Impossible 7 and October’s Halloween Kills.
In the economics world, there are plenty of sequels too, whether it is stock market crashes, recessions, or financial crises.
The latest economic box office release doing the rounds is the Cost of Living Crisis 2.
This is the sequel to the squeeze on living standards that took place between 2008 and 2014, particularly the period from late-2009 to late-2013.
Around the world, households are being hit with inflation rates not seen in several years or indeed several decades.
Food and energy prices are soaring, housing is becoming less affordable, and incomes are being squeezed. UK CPI reached 5.4% year on year for December — the highest rate since March 1992.
Goods inflation is expected to breach its record high of 7.4% in the coming weeks.
Energy costs and the price of second-hand cars have been key drivers of inflation in recent months and were again prominent in the latest figures.
Indeed, second-hand cars recorded their largest year-on-year increase on record in December, up 28.6% year on year. Price rises were broad-based across goods and services.
But the acceleration in food price inflation is particularly concerning for those on lower incomes.
Food prices recorded their biggest monthly rise in nine years in December with the annual rate of inflation jumping from 2.4% in November to 4.5% last month. The latter represents the steepest rise in over eight years.
Bread and milk prices are running at 4.4% year on year while those with a penchant for ready-meals will note that prices have soared by close to 12% over the last 12 months.
Unfortunately consumer prices are set to push considerably higher in 2022. It is worth remembering that September’s CPI rate of 3.1% up year on year is used to set the increase in welfare benefits, such as Universal Credit payments.
Similarly the majority of people working are unlikely to see wages keep up with inflation and will therefore also see a significant fall in their standard of living. Inflation will be just one part of this squeeze, with tax rises the other.
National Insurance Contributions are set to rise by 1.25 percentage points next April while income tax thresholds will be frozen for four years.
Up until December 2021 central banks had been loath to take up the role of inflation busters just yet. But last month saw the Bank of England perform its first rate rise in three years.
And we can expect a further rise in February with at least one more after that this year.
Inflation hits those on lower incomes disproportionately hard and as illustrated in the last cost-of-living crisis, Northern Ireland fares worse than other UK regions.
NI has the highest proportion of low paid jobs in the UK (almost one in five), it has the lowest discretionary disposable income within the UK, and local households spend disproportionately higher amounts of their income on energy, food, petrol and diesel relative to the rest of the UK.
During the noughties, pay rises consistently outpaced inflation, effectively providing NI and UK workers with a foot up the standard of living ladder. The global financial crisis ultimately led to a huge cost-of-living snake with the median annual wage of a private sector full-time worker in Northern Ireland falling by 12% in real terms between 2008 and 2013. That equated to a fall of £3,000 per full-time worker.
From 2013 until the start of the pandemic, local workers had been clawing back their fall in real earnings and improving their standard of living. Some sections of the workforce, notably those working part-time, benefited from the inflation-busting increases in the National Minimum Wage/National Living Wage.
By 2019, private sector wages for full-time employees had almost returned to their 2008 level when adjusting for inflation. But the pandemic has seen real wages fall back again.
And once again we are at the start of another big cost of living snake, with inflation set to outpace wage growth in the next couple of years.
Just as Rishi Sunak surprised us all with the Coronavirus Job Retention Scheme, expectations are being raised for him to do ‘something big’ to insulate households from the savage energy cost increases that are still to be felt.
We can expect the Chancellor to at least take some of the rough edges off the evolving cost-of-living pressures in the coming weeks.
Indeed “supporting households” is likely to be the main theme of the next Budget on March 23. Will we see a windfall tax on energy companies? A temporary cut in the 5% VAT on domestic energy bills? A return of the temporary £20 uplift in Universal Credit? A deferral in the planned hike in National Insurance Contributions in April? We will have to wait and see what Rishi ‘Whatever it takes’ Sunak does next.
On a positive note, the labour market is in much better shape with the unemployment rate less than half of its peak during the last cost-of-living crisis. But on a negative note, the last cost-of-living crisis did not have to contend with Brexit.
The NI Protocol has already provided significant benefits to many local companies. But the ‘best of both worlds’ NI Protocol narrative wrongly suggests that the new arrangements are unambiguously positive. The access to both markets is helpful, but Brexit – and its outworking through the Protocol – add new regulations, bureaucracy and costs.
The Cost of Living Crisis 2 will be coming to a household near you soon.
