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oliver-taylor
8th November 2011

Inflation and joblessness will make you miserable

‘Students tend to spend higher proportions of their income on food and fuel, which have been the main drivers of inflation.’
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TLDR

Recent times have been tough for students. Graduate unemployment was at 20 percent in 2010, and the most recent unemployment figures are 8.1 percent. With no sign of abating, inflation will make the lives of students as well as others (mostly vulnerable groups in society) miserable.

Unlike normal borrowers who benefit from inflation, as the relative value of their loans decreases, students are disadvantaged because the repayment rate of a student loan is linked to the Retail Price Index which stands at 5.6 percent, the highest recorded since October 1992. Furthermore students tend to spend higher proportions of their income on food and fuel, which have been the main drivers of inflation. Not only will inflation make it harder to pay back student loans, but it’s also making it harder to simply survive.

Soaring utility bills have proved particularly painful for students. Who usually, due to inexperience and the relatively temporary nature of their rents, end up getting a raw deal.

“I could be getting ripped off, but I don’t even know. I probably am,” says Jessica Toomey, a History of Art student at the University of Manchester

“We were charged for electricity use over the summer when we didn’t even live here.” Remarks drama student Megan Holland, studying at the same institution.

Green regulation and investment requirements have been blamed for the recent hikes in price but Chris Huhne, the minister for energy and climate change, has hit back. Instead he blames Ofgen, the industry regulator’s lack of power. Huhne has also suggested that “lazy” consumers are to blame and they should take a more active role in finding the best price.

Even if you are one of the 80 percent of graduates who manage to secure a job, you may not escape the misery. With wages rising at an annualised rate of 1.8 percent from June to August and inflation at 5.2 percent during the same period. The real value of your pay will probably have shrunk.

Another measure to illustrate how hard things are for recent graduates is the misery index. It was created in the ‘60s by the economist Arthur Okun and is calculated by adding the unemployment rate to retail price inflation. The current rate for the general population is 13.7 whereas for recent graduates it’s 25.6. To put that in perspective, the misery index was at 30 during the winter of discontent. If the data were available, it would be interesting to see what it would be for current students.

With the twin evils of joblessness and inflation, it’s apparent how bleak things are for students and recent graduates alike.

 


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