• CPI inflation hits 3.2% - the highest since January 2012
• Food prices rise by the largest amount since 2008
• Eat Out to Help Out, petrol prices and second-hand car demand all drive prices up
Laura Suter, head of personal finance at AJ Bell, comments on the latest ONS inflation figures:
“July’s fall in inflation was a mere blip as August brings us the largest leap in inflation we’ve ever seen. The jump in CPI to 3.2% means inflation is the highest in almost a decade, with January 2012 being the last time it was higher.
“A tricky combination of artificially suppressed prices last year due to lockdown, rising fuel prices, the ongoing high demand in the second hand car market and supply issues have all combined to create a steep rise in prices in August.
“Part of the increase is due to prices in restaurants, bars and hotels being lower last year thanks to the Eat Out to Help Out scheme, which discounted food costs, and the reduction in VAT for the sector, although that is still ongoing.
“The transport sector was also a big contributor to rising prices, with petrol prices having shot up in the past year, sitting on average more than 20p a litre more expensive than this time last year. The ongoing chip problems with new cars mean that the second-hand car market is still flying, with prices rising 18.4% since April this year, compared to a 1.4% rise in the same period last year.
“The final nail in the rising prices coffin is the supply chain issues and increased shipping costs we’ve seen all over the news, which has served up higher food costs in August. The issues mean food prices have risen by the largest amount since August 2008, when the UK was in the depths of a recession.
“The ONS is keen to point out that much of this rise in prices is temporary, particularly the restaurant and café sector. However, the Bank of England itself has predicted prices will rise further from here before the end of the year, so we shouldn’t bank on this being a flash in the pan.
“Savers last month enjoyed a helpful mixture of a small war on rates in the savings market and a dip in inflation. It was a bright spot after a bleak few months for cash savers. However, they will be hoping the battle for cash keeps playing out and interest rates keep rising, as the hurdle for your cash to just keep pace with prices has now ratcheted up.”
