Double-digit inflation bites

The UK inflation rate has hit double digits for the first time in 40 years today, according to new ONS statistics out today.

The 10.1 per cent price rise recorded for July is higher than analysts were predicting, and by October, inflation is now expected to reach 13 per cent. The Bank of England is predicting a recession by the end of the year.

Interestingly, the politicians and experts who not long so along were still reassuring us that inflation was simply “transitory” have gone distinctly quiet. 

These latest figures have put paid to the theory that energy prices alone are causing inflation to soar. According to the ONS, they are responsible for around half of the 10.1 per cent rise.

The primary factor driving price hikes between June and July was record increases in the cost of food and drink – with bread, cereals, milk, cheese and eggs the main offenders. The price of a pint of milk, for instance, has more than doubled in some shops since the start of the year.

Much of these food price rises reflect the spike in costs of raw ingredients such as wheat and grain, following war in Ukraine – a key global producer. This provides a glimmer of hope that food price increases could tail off soon, since the squeeze on grain production is easing now that exports from Ukraine have resumed.

Unfortunately, this still doesn’t mean inflation has hit its peak. We are yet to feel the impact of October’s energy price cap rise – when bills are expected to surpass £3,000 a year. This is the point at which inflation is forecast to soar to an eye-watering 13.3 per cent.

For many businesses, the situation is desperate. One restaurant owner quoted by the BBC said the coronavirus lockdown is nothing compared to what they are contending with now – and the government must offer pandemic-style levels of support. 

Aside from the cost of ingredients, businesses are not even protected by the household price cap when it comes to the cost of energy. Martin McTague, chair of the Federation of Small Businesses, says that reports from small firms of four- or five-fold – or even higher – increases in their energy bills are coming in thick and fast. The figures being quoted for energy costs “would be laughable”, he says, if their potential effect on the business were not so serious: “They are huge, unmanageable sums for businesses whose margins have been battered and whose reserves have been depleted by the disruption to trading caused by the pandemic.”

More worrying still, the Institute of Fiscal Studies is warning that the poorest fifth of households could face even higher inflation of 18 per cent in October. For the past decade, the richest have faced slightly higher inflation. Now, the less affluent are expected to be hit hardest because the major drivers of price rises are not luxuries but the basics – food and fuel – on which poorer households spend more of their money. 

Lord Stuart Rose, chairman of Asda and a Conservative peer, has labelled the lack of targeted government action to shield those most in need “horrifying.”

We have a Prime Minister “on shore leave”, says Rose, leaving a situation where “nobody is in charge”. At this time of national crisis, it’s hard to avoid the impression that the government has indeed gone AWOL.