The consumer prices inflation rate in the UK hit 3.2% in the year to August, with food, used cars, and petrol amongst the factors driving it higher. The rise of 1.2 percentage points from the 2.0% figure in July is the largest ever recorded monthly increase since CPI records began in January 1997.
However, the Office for National Statistics (ONS) suggested the big increase is likely to be temporary. It highlighted that there had been a large rise in restaurant and cafe prices last month compared to the same period last year when they fell due to discounts offered under the government’s ‘Eat Out to Help Out’ scheme.
Transport costs contributed to the rise after petrol prices hit their highest level since September 2013.
Meanwhile, food prices also rose, with the ONS pointing to the widely reported cost pressures in the industry caused by shortages of supply chain staff, increased shipping expenses, coupled with demand increases following the lifting of national lockdowns.
Speaking to the BBC Radio 4’s Today Programme, Ruth Gregory, senior UK economist at Capital Economics, said that price rises seen in August were “almost unavoidable” because of the discounts available in 2020.
“Inflation, which is a year-on-year comparison, was always going to look strong compared to last year,” she said.
However, Gregory stated that some of the rise reflected genuine factors too. “We are now seeing the effects of higher global shipping costs and shortages of staff driving up food price inflation,” she said.
She also expects that the cost of living to continue to increase rapidly, with inflation exceeding 4% by November.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, added: “Much of this enormous jump is powered by the same alarming imbalance between supply and demand that has seen yawning gaps open up on the supermarket shelves.
“It spells trouble for shoppers, savers and the broader economy.”
The figures are expected to fuel debate about whether interest rates need to go up. However, Capital Economics pointed out that inflation is likely to fall back almost as sharply next year and that the Bank of England’s Monetary Policy Committee is not expected to raise rates until 2023.
NAM Implications:
- Given the variety of rates being reported, consumers may revert to their perception of ‘real inflation’
- * See Pound in your pocket inflation
