Inflation sees largest rise on record after food and eating out costs surge

UK inflation has soared to nearly a decade high after rising at a record pace last month when grocery and eating out costs skyrocketed.

The Office for National Statistics (ONS) said consumer price index (CPI) inflation rose from 2% in July to 3.2% in August – the highest since March 2012.

The ONS said the increase – the largest since records began in 1997 – was largely due to discounts across the hospitality industry last August under Chancellor Rishi Sunak’s Eat Out to Help Out program to boost consumer spending after the lockdown .

The ONS said the August surge was temporary, but experts predict inflation will hit 4% – or more – by the end of this year when the economy recovers from the pandemic.

The official data showed that inflation rose in many areas of the economy, with used car and fuel prices rising while food costs rose amid the supply chain crisis.

Jonathan Athow, Assistant National Statistician at ONS, said: “August saw the largest month-to-month increase in annual inflation since the series was launched nearly a quarter of a century ago.

“Much of this, however, is likely to be temporary as prices for restaurants and cafes have dropped significantly over the past year due to the Eat Out to Help Out program, while prices have increased this year.”

As another sign of pressure from problems in the global supply chain and the shortage of truck drivers in the UK, the ONS said manufacturers are seeing huge increases in the cost of raw materials, with prices for input and output – or factory gate – as fast as they have been since a decade.

There are fears that these will be passed on to consumers in a timely manner, though the ONS said it was unclear how long it will take to reach wider inflation.

The unexpectedly high rise in inflation is putting further pressure on the Bank of England ahead of its interest rate meeting next week, with the CPI surpassing its 2% target.

The bank has so far insisted that big spikes in inflation will only be temporary, but fears are growing that price pressures could last longer than expected.

Sarah Coles, Hargreaves Lansdown’s personal financial analyst, said the rise in inflation over the past month has been “breathtaking.”

She said, “It was bumped significantly a year earlier by the Eat Out to Help Out program discounts that will be falling out of the numbers next month.

“Much of this huge leap, however, is being driven by the same alarming imbalance between supply and demand that has left yawning gaps on supermarket shelves.

“It means trouble for buyers, savers and the entire economy.”

The ONS figures showed that Eat Out to Help Out from a year ago, as well as the temporary VAT cut, had the biggest impact on CPI in August, with catering services inflation rising 7.9%.

The data also showed that food and soft drinks prices rose 1.1% month on month, or 0.3% for the year.

Fuel prices were another factor driving inflation higher last month, with gasoline seeing the largest increase since September 2013 while used car prices rose 4.9% and are now 18.4% higher since April .

The ONS added that the retail price index (RPI), a separate measure of inflation, rose to 4.8% last month.

CPIH inflation, including owner-occupier housing costs – the ONS ‘preferred measure of inflation – was 3% in August, up from 2.1% in July.

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