Food Price Increases Drive UK Inflation Back To 40-year High

The figures emphasised the difficult environment for British households, particularly those on low incomes, who face new uncertainties with the rise of inflation.

LONDON – The biggest increase in food prices since 1980 pushed British inflation back into double digits last month, matching a 40-year high set in July, inflicting a new blow on households already struggling with rising living costs.

According to the Office for National Statistics, the consumer price index (CPI) increased by 10.1% year on year in September. A Reuters poll of economists predicted a reading of 10.0%, up from 9.9% in August.

On the news, the pound fell below RM5.34 and was last down 0.2% on the day.

The figures emphasised the difficult environment for British households, particularly those on low incomes, who face new uncertainty about the extent of financial assistance available to them as a result of recent government U-turns.

In light of Wednesday’s data, the Bank of England will also be under pressure to accelerate its interest rate hike campaign next month.

Short-dated British government bond yields, which are sensitive to changes in interest rate expectations, rose strongly in early trading.

Food and non-alcoholic beverages prices were the biggest driver of inflation in September as they rose by 14.5%, the biggest jump since April 1980 according to historical modelled estimates of the CPI.

UK food and drink prices rise at fastest rate since April 1980: ONS
UK food and drink prices rise at fastest rate since April 1980: ONS

Rising Core Inflation

Hotel prices also increased in September, the ONS said.

“Today’s release highlights the danger that underlying inflation remains strong even as the economy weakens,” said Paul Dales, chief UK economist at consultancy Capital Economics.

He pointed to rising core inflation, a measure that excludes volatile food and energy prices, which hit a new 30-year high of 6.5%.

The September inflation figure is used as a reference point for the “triple lock” indexing of state pensions – but pensioners are yet to hear a clear answer from the government about whether they will rise in line with prices next year.

Government support for household and business energy bills is also in doubt after new finance minister Jeremy Hunt limited the scope of the programme to six months, from two years previously.

Many households face rising costs as a direct result of the financial market fallout from Prime Minister Liz Truss’s economic growth agenda, which Hunt largely reversed on Monday in a drive to restore shattered investor confidence in Britain.

Even without the recent political and financial turmoil, Britain was hit hard by the surge in European natural gas prices caused by Russia’s invasion of Ukraine, which has added to post-COVID supply-chain bottlenecks and labour shortages, creating an intense squeeze on living standards. – Reuters

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