• Inflation rose 0.8% between January and February
• Energy costs already making an impact before the next price cap rise
• Price increases from post Covid pressures not Russia’s invasion of Ukraine
Danni Hewson, AJ Bell financial analyst, comments on the latest UK inflation data:
“How can a simple number cause so much pain to so many? 6.2% was the rate at which prices were rising back in February but anyone who’s filled up at the pump over the last few weeks or has shelled out for a simple loaf of bread will tell you that headline is only good for tomorrow’s fish and chip wrapper, though you’ll be paying more for that treat too. Almost across the board prices have been going up, from a glass of mineral water to a bag of sweets pretty much every time a till rings it’s going to make you wince.
“There are some obvious factors at play; post-Christmas sales petered out in February pushing up the cost of shoes and clothing just as many people were being asked to head back into the office which required a slightly less relaxed wardrobe and maybe a few bulky sweaters. The cold snap that had many of us nervously eyeing our thermostats came at a price - it might have been the price capped back in October, but it was still considerably higher than the year before. And February had the highest average diesel prices ever recorded by the ONS but motorists would queue round the block if they spotted diesel at 151.7p a litre today.
“Because, put simply, what people experienced in February was just the tip of the inflation iceberg. Putting Russia’s invasion of Ukraine aside for the moment, next month’s rise in the energy price cap is massive. Even if the current warm spell continues, just keeping the lights on is going to ratchet up the pressure on household budgets. The prices of products leaving the factory gate are now at the highest level for 14 years and food products are right at the top of the pile. And the cost of those materials is also heading just one way and that’s where the subject of war can’t be ignored any longer.
“Since the 24th of February the price of oil, gas, wheat, metals and vegetable oil have soared. Making stuff, transporting stuff and ultimately buying stuff is only getting more expensive. The Bank of England had hoped for 7.5% to be the peak of this price pain, but it’s already accepted the landscape has changed. Prices will get higher than had been forecast, they’ll stay higher for longer than forecast and for the first time in forty years double digit inflation doesn’t just look likely, it looks nailed on.
“A happy co-incidence or unfortunate timing, these figures won’t tell the Chancellor anything he doesn’t already know. But knowing and understanding are two different things. The cost of living is a crisis, it’s pushing some households deep into debt and deeper into despair. Yesterday’s borrowing figures gave Rishi Sunak some wiggle room, the economy has been recovering after its Covid nap but the next few months could stifle growth which leaves the Chancellor with quite a tight rope to walk.”
