Next week, gas prices will rise by 50%, and prices overall are set to increase by almost 9% by the end of the year. This is the hideous face of inflation in the UK today. But what does this actually mean for you, for us, and for the country as a whole? 

Simply put, inflation is the rise in the prices of goods. It occurs as demand increases for goods and services whilst supply is limited, and the value of money also decreases as fewer goods can be bought with the same sum of money in £.  

This is especially pertinent in the aftermath of the pandemic, as shortages for goods such as semiconductors have affected the sale of cars and computers. Demand was also low in the midst of the pandemic, but the post pandemic recovery saw demand for products soar. All of a sudden, fuel, cars and houses were rapidly consumed by millions in a wave of pent-up demand. As a result, prices soared.

However, economic policy has played a significant role in deepening the crisis. In 2021, interest rates reached historical lows. How low, you may ask? The base interest rate last year was at about 0.1%- i.e., virtually nothing. At the moment, the base interest rate is about 0.75%- an increase but still relatively low.  Low interest rates further stimulated demand in the economy, leading to a soaring of prices across the board. A recent escalation of the war in Ukraine, in addition to sanctions placed on Russia, have even further worsened the situation (in addition to undermining market confidence) as the supply of goods such as gas and wheat are severely limited globally.

The results have been unprecedented, astonishing, and horrific. We are being squeezed for our money more than ever before. The poorest are being hit the hardest as prices rise and incomes stagnate. Prices for essential goods such as fuel, electricity and food are rising, and the effects are experienced in all towns, in all homes, and in all families.   

We are in a cost-of-living crisis spurred on by inflation of common goods, coupled with existing difficulties such as the housing crisis- the average house in London today costs a staggering £630,000 and this certainly does not help the situation.  Although students like me are not directly affected, we can see the effects on our parents and on our households. I asked Edwin John, a local Year 11 student, for his opinion. He had this to say: “I haven’t directly noticed it when purchasing products but I often hear my parents discussing that the price of vegetables has risen.” 

I can certainly corroborate, and it’s an issue which is only set to worsen in coming months. What is the solution, if any, to this mounting issue? One solution, recognised by the Bank of England, is contractionary monetary policy. Interest rates and taxes are raised, with an aim of cutting aggregate demand for products in our economy. The banks have raised base interest rates, though the effects remain to be seen. Contractionary monetary policy comes with its own disadvantages as it could reduce economic growth and investment, although it does seem like a much-needed stabiliser at the moment. 

 Indeed, hard times may be coming but it could mark a major turning point in policy. Furthermore, fuel shortages could provide the much-needed impetus for sustainable fuels to truly take off. New technologies, such as electric pumps, could replace fossil-fuel powered heating systems but the incentive hasn’t been there- until now. 

To summarise, costs are rising, and this is a real problem for us all. Everyone is aware of that. But whilst this is a crisis, it also presents an opportunity for change. Our economic model isn’t working, and it’s about time we truly address that. Although a recovery model based on cutting interest may seem to work in the short term, it is costing us and a change is needed. Although energy prices are soaring, there’s no time better than the present to make a lasting change to the energy mix and embrace new technologies. Lessons need to be learned, and change needs to come, or else this anguish will only repeat itself.