Yahoo Finance Inflation hits 41-year high of 11.1% on the back of energy and food price hikes
The UK’s rate of inflation hit a fresh 41-year high in October, accelerating to 11.1% on the back of the soaring cost of dairy products, eggs and energy bills.
The Office for National Statistics (ONS) estimated that the 11.1% reading for the consumer prices index (CPI) measure of inflation was the highest since October 1981. It added that prices rose between September and October 2022 by as much as they did in the entire year to July 2021.
The latest increase was driven by the biggest surge in grocery bills since the late 1970s and higher energy costs even after the government introduced a £2,500 cap on average gas and electricity prices.
Food and non-alcoholic beverage prices rose by 16.4% in the 12 months to October 2022, up from 14.6% in September 2022. That’s the highest since September 1977, the ONS estimates.
“The largest upward effect came from milk, cheese, and eggs, where prices for shop-bought milk and cheddar cheese rose between September and October 2022 but by more than between the same two months in 2021,” the ONS said.
Commenting on today’s inflation figures, ONS Chief Economist Grant Fitzner, said: (1/3)
⬇️ pic.twitter.com/P8squDcmHy— Office for National Statistics (ONS) (@ONS) November 16, 2022
Surging energy prices have been the main driver of the cost of living crisis. The ONS said gas prices have leapt nearly 130% higher over the past year, while electricity has risen by around 66%.
Without the energy bills help, the inflation figure would have gone as high as 13.8%.
Chancellor Jeremy Hunt blamed the impact of the pandemic and Vladimir Putin’s war in Ukraine for the spike in prices as he warned that “tough” decisions on tax and spending would be needed in Thursday’s autumn statement.
“The aftershock of COVID and Putin’s invasion of Ukraine is driving up inflation in the UK and around the world,” he said.
“This insidious tax is eating into pay cheques, household budgets and savings, while thwarting any chance of long-term economic growth.
Read more: Rishi Sunak expected to raise national living wage in autumn statement
“It is our duty to help the Bank of England in their mission to return inflation to target by acting responsibly with the nation’s finances. That requires some tough but necessary decisions on tax and spending to help balance the books.”
Hunt is tipped to protect the most vulnerable from the worst by raising benefits and pensions in line with inflation but has warned that we all face higher taxes to help balance the books.
The ONS estimates that prices are rising even faster for the poorest households – by more than 16% for the families who spend the least.
That’s because low-income households spend more of their money on energy and food – where costs have soared.
Some stats behind the rising cost of shopping … pic.twitter.com/rWcRBKFPUS
— Mark Simpson (@BBCMarkSimpson) November 16, 2022
The gap between low- and high- income household inflation rates is the largest since March 2009.
Jack Leslie, senior economist at the Resolution Foundation, said the government must do more to close this cost of living gap between rich and poor.
“Everyone in Britain is affected by double digit inflation – which has caused pay packets to shrink at record rates. But some groups are more effected than others, and Britain now has a significant cost-of-living gap between rich and poor households,” he said.
Watch: Rising energy and food bills tip inflation to highest level since 1981 at 11.1%
“Rising energy bills and rapid food prices mean that low-income households now face an effective average inflation rate of around 12.5%, while in the cold winter months, the over 80s are already facing inflation rates of around 15.3%.
“This shows why the chancellor needs to protect vulnerable households through the ongoing cost-of-living crisis when he sets out his Autumn Statement.”
Rising inflation will also put pressure on the Bank of England to continue raising interest rates when it meets on Dec 15, following its 0.75 percentage point rise to 3% earlier this month.
Myron Jobson, senior personal finance analyst at Interactive Investor, said UK households will continue to be squeezed in the short term.
“The Bank of England doesn’t anticipate a sharp fall in inflation until the middle of next year. This means the cost-of-living stranglehold on household budgets looks set to remain for some time.
Read more: UK unemployment rate rises to 3.6% as real wages lag behind inflation
“Keeping on top of rising prices will remain a challenge for many households as astronomical price gains in everyday essentials such as food and household energy are significant contributors to headline CPI.”
Alice Haine, personal finance analyst at bestinvest, also outlined what high inflation could mean going forward.
She said: "High inflation is a nightmare for household finances, as it erodes spending power, gnaws away at savings and makes it very hard for people to maintain their living standards because their incomes simply don’t stretch as far.
"Throw in higher borrowing costs as interest rates continue their upward trajectory and the prospect of higher taxes and household budgets are getting squeezed in every direction."
"The nation’s financial resilience is under threat. It is becoming increasingly clear that tough times lie ahead for many.”
Inflation is the increase in price of something over time. For example, if a bottle of milk costs £1 one year and £1.10 the next year then that would mean milk inflation is 10%.
Victoria Scholar, head of investment at Interactive Investor, said: "The first is that inflationary pressures continue to take their toll on the consumer with prices of gas, electricity and food in particular adding to cost-of-living pressures with CPI outpacing expectations.The rising cost of essential items means poorer families are unfairly getting hit much harder, with the inflation gap between high and low-income households reaching the widest since March 2009.
"However for businesses, the picture looks more rosy. Producer input prices and factory gate rises appear to be showing an encouraging trajectory, slowing month-on-month with downward contributions from metals, crude oil and chemicals. PPI has now slowed for the third consecutive month."
Watch: How does inflation affect interest rates?
