Economics – Inflation still edging up

Date : 20 July 2021

New ONS data shows that inflation in the UK is still edging up. Year-on-year inflation in June 2021 was +2.4% when measured by the CPIH method, up from 2.1% in May.

Transport cost, especially motor fuel, was a key contributor – in June 2021 average UK price for unleaded petrol was £1.30 per litre, compared with £1.09 in June 2020.

Demand for fuel was unusually low in June 2020, due to COVID-19 lockdown measures, hence the price was also unusually low. Higher prices in 20201 may represent “correction” as normal lifestyles are resumed and fuel demand returns.

(Motor fuel and lubricants make up 2% of the CPIH “basket” of goods and services in 2021).

Other COVID-related effects may also be manifesting in inflation data – prices for second hand vehicles are also up year-on-year, perhaps because travelers are still avoiding public transport. Disruption to supply of new cars may also be having an effect.

Inflation in food and drink remains negative, at -0.6% annually, according to ONS. This compares with -1.3% in May 2021.

Shoppers, however, remain concerned about food price inflation. According to IGD’s ShopperVista programme, expectations for future inflation are rising, especially amongst the least well-off.

Given the rise in energy and material costs for food producers over recent months, this pessimistic view may be realistic.

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