Chronic pain: UK price rises are still hurting

Prices are rising faster than wages, and have been for months, but at least it’s not getting worse.

For the fourth month in a row inflation was 2.7%, new figures for January show. It’s the longest period on record that price rises have been static. Or rather moving forward at exactly the same pace.

But it’s no reason to celebrate – because while it’s not getting any worse, it’s also not getting any easier for households struggling to cope as bills rise faster than wages.

"The squeeze on real spending power remains very much in place,” said economist Victoria Clarke at Investec. 

And it will get worse before it gets better.

“We've got some further energy price rises and food price inflation upside pressures over the next few months, so it's probably not going to be drifting down until later this year, second half of this year," said RBS economist Ross Walker.

Howard Archer, economist at IHS Global Insight, added: "Oil prices have hit a near eight-month high in February, while food prices look likely to stay relatively elevated in the near term at least due to recent poor harvests. On top of this is the increasing risk that import prices will be pushed up by sterling's recent weakness.

He added: "[Price rises are] putting a significant squeeze on consumers' purchasing power given that latest data show that annual earnings growth was only half this rate at 1.3% in November. This is worrying for growth prospects over the coming months, as much will depend on how much consumers spend.”

Dynamic equilibrium

But while overall annual price rises have been stuck at 2.7% since October last year, what’s actually rising in price has changed every month.

For example, January’s figures show the smallest rise in health prices since January 2009 and the biggest rise in food prices since April 2011.

Annual Price Rises, January 2013

Source: ONS

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