Inflation at 30-year high
Pressure on UK households already struggling with the soaring cost of living is set to intensify in the coming months as inflation reached a 30 year high last month.
Consumer prices rose by 7% in March, according to the ONS – higher than most analysts anticipated and up from 6.2% in February.
Soaring fuel costs – which rose by a record 9.9% in March – are a major contributor to the cost of living squeeze.
The cost of eating at restaurants or staying at hotels has also increased by its biggest monthly amount since records began in 1988.
These price rises certainly predate the war in Ukraine – and are in large part the result of pandemic-related supply chain disruptions.
But President Putin’s invasion has exacerbated the problem. Aside from causing a further spike in gas prices, Ukraine and Russia are also the world’s main suppliers of sunflower oil. In the UK, the price of oils and fats for food increased by 7.2% in March.
Wages, benefits and pensions are failing to keep pace with the soaring cost of living, according to separate figures released on Tuesday by the ONS.
There is certainly no shortage of jobs. On the contrary, unemployment has fallen to 3.8% – its lowest level since 1974 – while job vacancies have hit a record high of 1.28 million. But for most employees, pay is falling sharply in real terms.
While the average wage has gone up by 4%, price rises have outpaced this wage growth. The effect is felt especially sharply in the public sector: on average, public sector workers are experiencing a 3% drop in spending power, the biggest fall in 20 years.
March’s rise in inflation will not be the last. This latest data was collected before the energy price cap was raised at the start of April – meaning it does not yet reflect the average 54% increase in energy bills that took effect.
When can we expect the squeeze to ease?
All forecasters seem to agree that price rises will accelerate as the year goes on, and the Office of Budget Responsibility warns that the war in Ukraine could push inflation to a 40-year high of 8.7% in the final three months of 2022.
The Resolution Foundation predicts that the cost of living crisis will “continue to worsen before it starts to ease at some point next year”. The current fall in real wages is likely to last until late 2023, it adds, by which point average wages would be no higher than in 2007.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, predicts this latest jump in inflation may well “seal the deal” on a quarter-point increase in interest rates when the monetary policy committee next meets in May. That will be the third rise in a row.