With inflation at an all-time high, the cost of living crisis is making life harder for households across Scotland and the UK. Fuel and food costs are two of the essential costs where price increases are being felt most keenly.
But why does inflation affect the average consumer – and how much more would you need to earn to avoid feeling the effects of inflation as badly? Here’s what you need to know.
What is inflation?
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Inflation is the general term used to describe increases in prices and decreases in the purchasing value of money over time. This can mean that the average consumer may be able to buy less for the same amount of money, if the price of items increases but their pay stays the same.
On a small scale, inflation can be good for the economy, encouraging consumers to buy items sooner and therefore boosting the economy. However, when inflation is too high, it can cause widespread problems for both consumers and businesses.
How big has your pay cut been?
As inflation climbed to 9%, it doesn't just affect the cost of things you’re buying, but also the value of the money you’re taking home. Looking at an example of a person who takes home £1,000 per month after tax, they would need to earn £1,089.92 to have the same value of money to spend.
This means they are taking a real terms pay cut of £89.92 if their salary doesn’t increase according to current inflation rates. These figures do not take increased National Insurance contributions from April 2022 into account.
To find out your own personalised pay cut, type your take home monthly salary into the salary calculator on this page.