Winner of Young Economist of the Year 2022 competition: cost of living crisis


The winner of the Young Economist of the Year is Gabriella Piccolo of Tiffin Girls’ School for her submission on the ‘cost of living crisis’. Gabriella is the winner of the ‘cost of living crisis’ topic, covering how inflation affects different demographic of individuals.

Her submission is available to read below.


The UK inflation rate (measured by the Consumer Price Index) is the highest it has been in 30 years, prompting concerns that it will cause a “cost of living crisis”. Which types of individuals or families/households are most affected by the current inflation situation and why?

By Gabriella Piccolo

Severe inflation rates in the UK have seemed inevitable since the extreme decrease in demand for goods and services during the Covid-19 pandemic. But now that inflation has hit a 30-year high of 9% and rising, who is worst off?

The demographic of individuals above retirement age in the UK have been placed at a much larger disadvantage by ever-increasing inflationary pressures than the vast majority of the population. Around one fifth of the UK population is aged 65 or above, in which a large proportion of these receive either a private or a government pension, which does rise to meet inflation, but with a substantial time lag. Current UK inflation is 9% and on the rise, which means that only an immediate 9% rise in pensions will allow for the same purchasing power, but this is not the case. This will result in goods and services becoming more expensive in the short term as a proportion of their income, thus they may not be able to afford items that they were previously able to afford, until their pensions are altered. This becomes a social issue when they can no longer afford common necessities of the elderly, such as care and vital medicine, which are rarely funded publicly. Therefore, with citizens of this age, inflation does not only propose the troublesome and irritating issue of goods and services becoming more expensive in the short term, but at the extreme proposes a life or death problem.

Following on from this issue, individuals equally at risk are those who rely on healthcare the most, such as chronically ill people. In the public healthcare system, pay freezes on NHS staff, paired with the Covid-19 pandemic and increasing inflation, have caused resignation rates in the healthcare sector to be higher than ever. This has resulted in a reduction in the number of available medical professionals at any given time, which is likely to cause a noticeable reduction in the quality of care that a patient receives. If a person must rely on private healthcare, for example due to having a rare disorder in which a specialist is required, this is likely to become a great deal more expensive due to the nature of inflation. This may mean that vulnerable and unwell individuals can no longer afford this specialist healthcare, which in turn is likely to reduce their quality of life. Affecting the wider population, the cost of medicine has increased faster than the average rate of inflation for over half of drugs, which is likely to result in much of the population not being able to afford important medicine.

Another demographic of individuals in the UK who are most affected by the high rate of inflation are first time home buyers, who tend to be young adults. “Research shows that inflation could add more than nine years to the time taken for an individual to save for a 15% deposit”, and up to 17 extra years in more expensive cities such as London and Oxford. This extra time lag makes it a lot more difficult to get on the property ladder, especially as house prices often fluctuate the most with inflation. Since options for non-homeowners are usually limited to living in rented accommodation or with family, these people may have to continue living in these situations for a great deal longer than initially anticipated. People looking to purchase their first home are often in their mid to late-twenties; this significant increase in time lag may mean they potentially cannot afford to buy a home until their forties, by which time a large proportion of this demographic aim to have settled down and started a family already. Therefore, the fact that inflation adds an extra 9-17 years on the time taken to save up for a deposit may have a significant impact on the direction of first time home buyers’ lives.

The current inflation situation is likely to greatly affect small business owners and entrepreneurs. Firstly, the price of capital and raw materials have almost doubled in the last year alone, often resulting in decreased profit margins. This is particularly prevalent in small businesses, as “larger companies may hedge the cost of key inputs and may have resources to smooth out prices where input costs are cyclical”, but “for smaller businesses without the buffer of financial resources, this may be more difficult.” So, as small business owners, there are usually limited options to ensure that profit margins do not decrease, resulting in a loss of income for the owners themselves. Following on from this, workers are often subject to inflationary pay increases, which may further result in a decrease in a small business owners’ own income as they lose more of their profit to their employees or outsourced labour. Furthermore, it can be argued that new entrepreneurs are affected even more dramatically. For example, the increase in the price of labour and raw materials may mean that they cannot begin a business venture altogether. As over 40% of entrepreneurs have had to sell or remortgage their homes to start their businesses, these inflationary pressures are likely to have drastic negative effects on their quality of life and financial stability.

With all of these examples, it is vital to realise that the extent to which the current inflation situation will affect these demographics will inevitably vary with extraneous factors. For example, those who fall into the groups mentioned but are on a higher income are unlikely to be greatly affected than those on a lower income. For example, a retiree who has a large pension and comfortable savings is likely to be much less affected than a retiree on a much lower pension with fewer savings to support them; a first time homebuyer with a well-paying job and family to financially support them will be significantly better off than a homebuyer on a lower income and no other sources of finance. Therefore, these examples of those most affected by inflation are not definitive; they rely on other factors such as socioeconomic status and previous financial stability. Undeniably, current inflation will not affect everyone to the same extent but, overall, those left worst off by the government’s decisions are, more often than not, low-income households.



“Inflation: Who is hardest hit?”, Kevin Peachey, Personal finance reporter, BBC News, Published18 September 2012 https://www.bbc.co.uk/news/business-12192960

“Inflation: What does it mean for first-time buyers?” https://mojomortgages.com/mortgage-news/inflation-what-does-it-mean-for-first-time-buyers

“The Effects of Inflation and Roaring Economy On Businesses”, Signature Analytics, https://signatureanalytics.com/blog/the-effects-of-inflation-and-roaring-economy-on-businesses/

“How does inflation impact businesses?”, Professor Adrian Palmer, https://www.henley.ac.uk/news/2022/how-does-inflation-impact-businesses

“Prices Increased Faster Than Inflation for Half of all Drugs Covered by Medicare in 2020”, Juliette Cubanski and Tricia Neuman, Feb 25, 2022, https://www.kff.org/medicare/issue-brief/prices-increased-faster-than-inflation-for-half-of-all-drugs-covered-by-medicare-in-2020/#:~:text=For%20Part%20B%20drugs%2C%2018,259%20drugs