Image Source: Politico
Food inflation in the UK has reached its highest point in 14 years as a result of the skyrocketing prices of milk, cheese, and eggs.
In the year ending in August, food prices increased at their quickest rate since 2008 as the war in Ukraine continued to contribute to price increases at supermarket checkout counters.
According to official statistics, the total inflation rate decreased marginally as a result of falling gasoline and diesel costs, but it is still close to a 40-year high. Rising costs are eroding budgets since prices are rising faster than incomes.
Inflation in the UK, which gauges how quickly prices rise, decreased overall in August, falling to 9.9% from July’s 10.1% for the first time in almost a year.
Although the number was lower than experts had anticipated, some have cautioned that inflation is expected to continue to grow as costs for services like stores and restaurants, apparel, and food continue to climb quickly.
In an effort to keep inflation under control, the Bank of England has warned that it may reach 13% this year.
However, the government’s strategy to attempt to avert widespread misery by capping increases in home energy costs is likely to imply inflation won’t climb as much as initially anticipated.
Following Russia’s invasion of Ukraine, food prices have been increasing globally, which has contributed to price increases at supermarket checkout lines. The two nations, significant exporters of items including sunflower oil, wheat, and fertilizer, have disrupted their shipments by the conflict.
The inflation rate’s slowing down reflects some relief at the gas pumps this summer. Whether we have passed the pinnacle is the actual question.
Before the Energy Price Guarantee a week ago, such an idea would have been absurd. However, in the upcoming months, that should reduce headline inflation by 4 to 6 percentage points.
Additional sources of inflation
The cost of food increased at its fastest rate since 1995 in August, driven up by staples like milk, cheese, and eggs.
Inflation in the UK services sector, which reflects rising wages across many sectors of the economy, is also continuing to rise. Even with a 9.9% increase, prices are rising far more quickly than wages and over the Bank of England’s 2% objective.
In the upcoming months, the Bank is still expected to boost interest rates several times. Therefore, it is anticipated that this will be a drop before subsequent increases coincide with the increase in energy costs next month.
However, compared to what was projected before the Prime Minister’s energy promise, the peak, when it occurs, should be considerably closer to where we are now, probably 11 or 12%.
The rate at which prices are rising is known as inflation. For instance, milk inflation is 5% if a milk bottle costs £1 and goes up by 5p from the previous year.
Interest rates have been raised by central banks around the world, including the Bank of England, in an effort to rein in skyrocketing inflation.
Raising interest rates makes borrowing more expensive and incentivizes people to borrow less money and spend less money, which helps to limit inflation. It also motivates people to increase their savings.
The Bank postponed its widely anticipated decision to raise interest rates again on Thursday in light of the passing of Queen Elizabeth II. The conclusion of the Monetary Policy Committee will now be made public on September 22.
When the Bank of England announced its most recent decision, Kitty Ussher, the chief economist of the Institute of Directors, said she still anticipated interest rates to increase.
Prices of homes driven by inflation in the UK
Separate data released by the ONS show that in the year ending in July, house prices experienced their largest annual growth in 19 years. The 15.5% increase was higher than the 7.8% yearly growth recorded the month prior.
The impacts of last year’s stamp duty holiday were primarily to blame for the increase. In England and Northern Ireland, the stamp duty holiday was scaled back starting in July last year and will eventually end in October 2021.
Last year, a similar exemption from paying property taxes ended in Wales at the end of June and in Scotland at the end of March. All of them were in reaction to worries regarding the financial impact of Covid lockdowns. As a result, the increase for July this year was mostly driven by the contrast with the price declines experienced at this time last year.
According to the ONS, the average home price in the UK was £292,000 in July.
Opinions expressed by California Gazette contributors are their own.