Soaring cost of food and drink drives inflation
UK inflation passed 10 per cent and hit a new 40-year high last month, adding to pressure on households struggling with the cost of living crisis.
The consumer price index, the main measure of annual price rises, hit 10.1 per cent in July, according to the Office for National Statistics (ONS). It is the highest rate since February 1982 and surpasses forecasts by economists of 9.8 per cent. In June the rate was 9.4 per cent.
Britain is on course to suffer the highest inflation in the rich world later this year, with an annual rate of 13.3 per cent forecast in October when the energy price cap rises. It is due to rise again in January and pass £5500 (NZ$10,500) in April as the biggest cost of living squeeze since the 1950s tightens.
Inflation last month was driven by a jump in the price of food and nonalcoholic drinks, which rose by 2.3 per cent from the month before. Food is now about 12.8 per cent more expensive than it was last year, with the biggest price jumps recorded in bread, cereals, milk, cheese and eggs.
The soaring cost of energy, packaging and animal feed has pushed up the price of everyday food items. The rise in food prices was widespread, with increases recorded across all 11 food categories.
Food inflation has not been this high since August 2008.
Inflation in the cost of fuels such as petrol and diesel hit 43.7 per cent last month, up from 42.3 per cent in June.
Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, expects inflation to fall slightly before rising in October when households receive their energy bills.
‘‘The headline rate of CPI [consumer price index] inflation looks set to fall a little in August and September, as the recent fall in oil prices gets passed on to consumers at the petrol pump,’’ he said.
The Bank of England, which has set an inflation target of 2 per cent, expects the price rises to erode demand, pushing the UK into a 15-month recession this winter until mid-2024. The downturn is not expected to be as deep as the one that followed the global financial crisis in 2008 but will knock about 2 per cent off gross domestic product, the central bank warned.
Nadhim Zahawi, the chancellor, said: ‘‘I understand that times are tough, and people are worried about increases in prices that countries around the world are facing. Although there are no easy solutions, we are helping where we can through a £37 billion support package, with further payments for those on the lowest incomes, pensioners and the disabled, and £400 off energy bills for everyone in the coming months.’’
Kit Malthouse, the Cabinet Office minister, acknowledged that the July inflation figure was ‘‘alarming’’. He told LBC Radio: ‘‘Obviously the inflation figure that’s come out this morning is alarming for families up and down the land, and we’re struggling with a global phenomenon like most developed countries. We’re seeing this inflation into double figures caused by the war in Ukraine, post-pandemic supply chain shocks and a general stretch on the energy supply system.’’
Grant Fitzner, chief economist at the ONS, said: ‘‘A wide range of price rises drove inflation up again this month. Food prices rose notably, particularly bakery products, dairy, meat, and vegetables, which was also reflected in higher takeaway prices.’’