Food inflation has reached the highest levels seen since 2008 in the year to August, although the gloomy outlook for overall inflation has eased somewhat thanks to the government’s new package of targeted support on energy bills.
Rising food prices were mainly driven by the ongoing war in Ukraine according to the Office for National Statistics [ONS], with the conflict disrupting Russian and Ukrainian exports of grain, sunflower oil and fertilisers.
Lower petrol and diesel prices at the pump meant that the overall inflation rate did ease compared to the previous month, but inflation remained close to a 40-year peak.
In the year to August, inflation measured in at 9.9 per cent compared to the 10.1 per cent recorded in July.
Despite the slight easing of inflation, experts believe it could rise again with increased prices for food, clothing and services.
Consumer spending power has also been limited with wage growth not keeping pace with rising prices. Meanwhile, the Bank of England had predicted that inflation could exceed 13 per cent this year and is expected to bring in further interest rates as it bids to temper rising prices.
Another increase in rates had been expected to be approved by the Bank’s Monetary Policy Committee on Thursday (September 15), but this was put on hold until September 22 following the passing of Her Majesty the Queen.
“The fact that the falling headline rate is due to changes in the price of petrol and diesel, which is driven predominantly by the international price of oil rather than by domestic factors, means news is unlikely to alter expectations of a rise in interest rates,” said Kitty Ussher, the Institute of Directors’ chief economist.
Yet, the government’s plan to cap energy prices for two years which was revealed last week could mean that overall inflation does not exceed 13 per cent as had been forecast.
Indeed, the Resolution Foundation’s Jack Leslie said that the outlook has “brightened considerably” this week in the wake of Liz Truss’ announcement, with the Energy Price Guarantee preventing a “second winter surge in prices” which would further drive inflation and stimulate the cost-of-living crisis.
However, Leslie warned that high inflation could persist “for some time”, particularly for lower income and more vulnerable households that are most susceptible to struggle in the face of price hikes.
Photo by Liuba Bilyk on Unsplash
