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UK inflation: Surge in energy and food prices have hit households hard.
UK inflation soared to a more than 40-year high in April thanks in part to rising food, energy and fuel prices and the war in Ukraine as the economy deteriorates and people have less to spend.
According to the latest data from the Office for National Statistics (ONS) on Wednesday, the consumer price index (CPI) measure of inflation rose to 9%, the highest since it started being calculated in 1997.
ONS estimates that CPI hasn’t been higher since 1982 when it peaked at nearly 11%.
This is up from a 30-year high of 7% in March, while economists polled by Reuters forecast inflation to hit 9.1%.
Core CPI, which strips out volatile food and energy components, rose 6.2% in a sign that inflation has become embedded across Britain’s economy.
Renewed COVID lockdowns in China and Russia’s invasion of Ukraine have deepened supply chain issues, which were only just recovering from the havoc wrought by the pandemic, sending global prices rocketing.
This trickled into household bills, with Ofgem lifting the price cap on energy bills by 54% in April and the Bank of England (BoE) now sees a further 40% increase in October.
Around three quarters of the increase in the annual inflation rate this month came from utility bills, Grant Fitzner, chief economist at the ONS said.
Read more: How to cope with bills out of the blue when you really can’t afford it
Motor fuel prices soared to record highs, driving inflation higher after the Ukraine crisis lifted oil prices. Petrol jumped 28.9%, electricity 53.3% and gas 95.5%, according to the ONS.
RAC figures show the average price of diesel rose to a record 180.32p, while petrol climbed to 166.8p, taking it closer to the all-time high of 167.3p set in late March.
Food prices also rose sharply in the year to April, with the war driving up the cost of cereals, cooking oil and meat.
Food inflation and non-alcoholic beverages increased to 6.7%, the fastest rate since 2011. This includes double-digit rises for some products such as pasta (+10.4%), lamb (14.3%), beef and veal (+10.2%), poultry (+10.1%), oil and fats and milk (+14.5%).
The retail price index, to which some government bonds and train prices are linked, jumped to 11.1% from 9% the previous month.
Factory gate prices also jumped 14%, a key indication that further price rises is in the pipeline as firms pass on costs to customers.
Chancellor Rishi Sunak, said: “Countries around the world are dealing with rising inflation. Today’s inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.
“We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.
“We’re saving the average worker £330 a year through reducing National Insurance Contributions, changing Universal Credit to save over a million families around £1,000 a year, and providing millions of families with £350 each this year to help with their energy bills.”
BoE governor Andrew Bailey warned of “second-round effects” from inflation, when a wave of price rises such as the energy bills shock feeds through the rest of the economy with higher wages, pointing to further rate hikes to control inflation.
He said an “apocalyptic” potential rise in food prices as a result of the Ukraine war were a major worry.
The latest gauge falls in line with the BoE predictions. The central bank forecast inflation to rise as high as 10% this year, warning this could tip the economy into recession.
Economic activity slowed sharply during the first quarter of 2022, the UK economy is suffering its worst bout of stagflation – weak growth alongside high inflation.
UK’s inflation rate is currently running at five times Threadneedle Street’s 2% target. Earlier in May, the BoE increased interest rates for the fourth consecutive time, from 0.75% to 1%.
Bailey has implied that he would be prepared to hike rates to stem inflation even if that leads to a recession.
“The latest jump in inflation also marks seven straight months of prices rising at a pace not seen since in a generation and nine months of inflation rising faster than the BoE’s 2% target,” said Myron Jobson, senior personal finance analyst at interactive investor. “Household budgets are crumbling under the crumbling under the pressure of spiralling inflation, driving many to breaking point.”
This adds to analysts’ warnings the tight labour market may force the BoE to lift rates more aggressively in the coming months, raising fears that a dangerous wage-price spiral is taking hold in the economy.
“The labour market has remained stronger than expected even though the economy has been weaker than anticipated,” said Paul Dales, chief UK economist at Capital Economics. “This supports our view that the BoE will have to raise interest rates further than widely expected, perhaps from 1% now to 3% next year.”
ONS data on Tuesday showed average wages continued to fall further behind the rate of inflation in March.
Earnings in the month shot up by 9.9% on the year, regular earnings excluding bonuses fell by 1.9%, although wages excluding bonuses jumped 4.2% in the first quarter. Unemployment was 3.7%, its lowest rate since 1974, while vacancies rose to nearly 1.3 million. – yahoo.com