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Inflation leaps as energy prices jump

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Surging energy bills, petrol prices, clothing costs and even a jump in hairdressers’ fees caused inflation to more than double last month.

Covid lockdowns over the last year had kept a lid on price rises, but they are back with a vengeance. Consumer price inflation jumped to 1.5pc in April, up from 0.7pc in March, according to the Office for National Statistics.

It means prices are outstripping the returns available to savers in bank accounts, with even the best five-year fixed rate savings bonds now failing to match inflation, according to MoneyFacts.

The rise came after energy regulator Ofgem lifted its price cap on gas and electricity bills to pre-pandemic levels from the beginning of the month. The cap rose by £96 to £1,138 for 11 million default tariff customers.

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Petrol is up 15pc on the year, taking the price at the pump to £1.25 per litre. That compares with £1.09 a year ago, and mean prices are back at levels last seen just before the pandemic.

Clothes prices are up 0.5pc on the year as shops reopened, marking the first annual increase since October.

Getting a haircut is also more expensive, with prices for women rising by more than 6pc, while men and children can expect to pay almost one-tenth more for an overdue trim.

Grant Fitzner, the ONS’s chief economist, said: “As the UK economy starts to recover, those dramatic declines from a year ago will leave their echo in the latest numbers as they become the starting point for calculating 12-month growth rates.”

It means the surge in inflation might only be a short-term phenomenon, as “these distortions will wash out of the annual figures in a few months’ time”.

Some goods are getting cheaper. Food costs 0.5pc less than it did a year ago, when panic buying and stockpiling put some upward pressure on prices.

The price of flour - which at times could not be found as home baking was suddenly in vogue - is down 14pc compared with April 2020.

Car insurance has fallen more than 15pc, as lower driving levels in the past year have cut payouts.

The CPI is still below the Bank of England's 2pc target for now, but Threadneedle Street's latest forecasts suggest it could peak at 2.5pc by the end of the year.

Governor Andrew Bailey has said the rise in inflation should be temporary, but the Bank is watching carefully for signs of strain in supply chains as the economy reopens.

Inflation is set to rise further over the months ahead as “prices for air travel, domestic accommodation and package holidays leap in response to rebounding consumer demand”, according to Samuel Tombs at Pantheon Macroeconomics.

The unwinding of the VAT cut to help hospitality businesses through the pandemic from October will also lift prices, although the end of furlough - and with it a probable rise in unemployment - is likely to ease Bank of England fears over prices running out of control.

“As a result, we expect the headline rate of inflation to peak only around 2.3pc towards the end of this year and then to dip back below the 2pc target a year from now, enabling the Monetary Policy Committee to keep Bank Rate at 0.1pc at least until 2023,” Mr Tombs said.

Rising energy bills and the recovery in oil prices since last year are building pressure on businesses, the ONS figures showed.

The cost of manufacturing firms’ raw materials is up one-tenth compared to last April after the biggest annual increase for four years. Producers' costs are rising quickly, piling pressure on them to raise prices for customers

Ambrose Crofton, global market strategist at JP Morgan Asset Management, said: “The manufacturing side of the economy is also experiencing acute disruptions.

"A confluence of factors including Brexit-related trade frictions, and rising commodity and freight prices, are adding cost-push pressure. It is expected that these factors should prove transitory, but exactly how long it is before bottlenecks are resolved remains highly uncertain.”