How inflation increases risk of underinsurance

What is causing inflation?

According to The Office of National Statistics The Consumer Prices Index rose by 6.2% in the 12 months to February 2022, up from 5.5% in January. On a monthly basis, CPI rose by 0.8% in February 2022, compared with a rise of 0.1% in February 2021 – the largest monthly CPI increase between January and February since 2009.

Energy prices are one of the main contributors to inflation as oil and gas remains elevated. The conflict in Ukraine is unquestionably fuelling inflation; demand for materials has risen considerably as Eastern Europe supply lanes are sanctioned-off.

Fuel prices are also soaring with average petrol prices hitting the highest on record in April. Food and goods continue to go up as the government return VAT back to its standard rate post-pandemic of 20%.

A significant impact also draws from the backlash of the pandemic. We are currently seeing, in the front pages of the news, long airport security queues and car manufacturer delays. Behind the scenes there are also factory closures, worker absences and container shortages, each having their significant effect upon the scales of supply and demand.

Higher interest rates also compound the situation as the market hardens and banks are more stringent on borrowing. Many people expect UK interest rates to reach 1.25% this year – but they could go higher; UK interest rates could hit 3.5%, The Office for Budgetary Responsibility (OBR) says.