Inflation reaches highest level in 30 years

The ONS has released its latest inflation data up to December 2021. Overall, this is the highest year-on-year inflation level for 30 years, recording 5.4% on the CPI index and 4.8% on the CPIH index. As a comparison on the old RPI measure inflation reached 7.5% up from 6% to November 2021.

This inflationary pressure continues to be broad-based with the majority of sectors showing growth.

As shown in Figure 1, price rises in ‘food and drink’ have accelerated dramatically, from 2.5% in November to 4.2% in December. At the same time last year ‘food and drink’ inflation was -1.4%.

Figure 1

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Figure 2 shows estimated contributions to RPI - here, we have used RPI because it gives broader coverage of household costs than CPI. Domestic energy continues to contribute a large proportion of price change, however, given the broad-based nature of this inflationary pressure, it would suggest that these energy price shocks are now being felt across the wider economy.

Note that ‘food and drink’, shown in the lowest blue bar is now starting to make a noticeable contribution to inflation effects – we would expect this to have significant impacts on shoppers.

Figure 2

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Also, inflation is now outstripping wage growth, as shown in Figure 3, which is up to the end of November 2021. We would expect to see this downward trend in real wages continue.

Figure 3

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Finally, it is worth noting that analysts are expecting to see inflation peak in April 2022 once the energy price cap is re-assessed in March. According to the Resolution Foundation, the average annual bill will jump from £1,277 to around £2000 (the maximum the cap will allow). Furthermore, the cap will be re-assessed again in August 2022 and given current gas futures prices, it is expected to rise again. These indicators would suggest that inflationary pressure will remain over the coming months.

This information will be covered in our Viewpoint webinar providing IGD’s view of what 2022 might bring for the food and consumer good industry.