Inflation is at a 10-year high, figures from the Office for National Statistics showed today.
Cost pressures have been primarily linked to global supply issues while producer figures suggest there’s worse to come
Danni Hewson, AJ Bell financial analyst comments on the latest inflation figures: “Another month, another hike in the cost of living. At 5.1% it’s uncomfortably above most analyst’s expectations and reaches the level the Bank of England had predicted for next spring. It begs the question; how hot will the temperature really get and how will households cope?
“With life bustling along in a rather normal fashion last month its not surprising to find transport costs, clothing and footwear played a big part. Think about how much we’re paying at the pump compared to a year ago. Then consider how often we actually filled up a year ago. Many places were already straight jacketed by covid restrictions and that’s definitely served to offset things but that’s of little comfort to a nurse paying more every week just to get to work or those white van drivers with parcels to deliver and cost margins to maintain. And whilst pre-covid, no one would be the least surprised to pay a bit more for a festive frock or the latest trainers in the run up to Christmas, last year retailers resorted to discounting to try and shore up sales, making this year’s purchases feel a lot more expensive.
“Then there’s chocolate. What a time for the cost of the sweet stuff to jump up, just as Santa’s trying to stuff as much of it as possible down chimney’s and under trees. After last year’s disappointments many of us have resorted to overcompensating and paying through the nose for the privilege.
“Global supply issues have most certainly played a huge part and not just in the price of petrol. The continued chip shortage has limited the options of drivers looking for a new motor. Second-hand car prices have exploded, up a whopping 31.3% since April and with the number of new registrations way down on last year the demand/supply equation doesn’t bode well for the next 12 months at least.
“So, we know where many of the pressures are coming from. We can look back and consider how the numbers have been skewed by those last year. But it’s what’s coming down the tracks that we really need to pay attention to. The energy price cap will go up. Many of the things we buy will cost more unless manufacturers can swallow the extra they’re paying for raw materials. And wage growth has slowed. Put simply the next six months is going to hurt, a lot.
“Should the Bank of England raise rates tomorrow? Should they have done it twelve months ago because realistically that’s how long the measure takes to make an impact. Think back to December 2020 and imagine the reaction if the Bank had hiked rates then. Now consider where we are. There’s no question that prices are too high. There’s no question that if employers start to raise wages substantially that’s just going to add to the problem. There’s no question December 2021 is beginning to look a lot like December 2020 and there’s no question that whatever decision the bank makes tomorrow it won’t bring a solution for today.”