UK inflation soared to a 30-year high in the year to December thanks to rising energy costs, strong demand for goods and services, and ongoing supply chain disruption.
According to the latest data from the Office for National Statistics (ONS) on Wednesday, the consumer price index (CPI) measure of inflation rose to 5.4%, the highest since March 1992 when it was 7.1%.
This is up from a decade-high of 5.1% in November, while economists polled by Reuters forecast inflation to hit 5.2%.
Food prices and non-alcoholic drinks grew strongly during the year, as well as restaurants and hotels, furniture and household, goods and clothing and footwear.
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In food, bread and cereals, meat, and vegetables such as potatoes went up in price.
The cost of transport and motor fuels also gained, adding more than 1 percentage point to the annual rate of inflation.
These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.
"I understand the pressures people are facing with the cost of living, and we will continue to listen to people’s concerns as we have done throughout the pandemic," chancellor Rishi Sunak said on Wednesday.
"We’re providing support worth around £12bn this financial year and next to help families with the cost of living. We’re cutting the Universal Credit taper to make sure work pays, freezing alcohol and fuel duties to keep costs down, and providing targeted support to help households with their energy bills."
Inflation is expected to soar to as much as 6% in April, when energy bills are set to rise, prompting the Bank of England (BoE) to raise interest rates. The Bank's Monetary Policy Committee (MPC) is set to meet on 3 February and decide whether or not to hike rates.
The inflation rate continues to be well above Threadneedle Street's 2% inflation target. The Bank hiked interest rates last month, from 0.1% to 0.25%, in a bid to cool soaring inflation. Experts expect another rise possibly as soon as early next month.
"The MPC will be faced with a difficult trade-off between ensuring financial stability or helping households cope with a cost of living crisis that is set to squeeze household finances over a difficult winter period," Paul Craig, portfolio manager at Quilter Investors, said.
"It’s not just the cost of living that is increasing, so is the cost of going to work, and wage increases may not be enough to cover the cost of returning to normality."
His comments come after the ONS revealed on Tuesday that UK wage growth lagged behind inflation in November. Average total pay, including bonuses, grew by 4.2% in the quarter to November, while basic pay without bonuses was 3.8%.
Alpesh Paleja, CBI lead economist, said: “We’ve not seen the end of rising inflation yet. We expect it to peak in the months ahead, not least if, as expected, the energy price cap is raised.
“With prices on the rise and real wages already falling, it’s likely households will face a cost-of-living crunch for much of this year. And with price pressures further up the supply chain still strong, the cost of doing business will also continue to climb sharply.”
The CBI called on the government to put forward urgent solutions to protect the most vulnerable consumers, who will struggle most with anticipated price rises.
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