UK inflation hits another 40-year high

Date : 21 July 2022

ONS has released its latest inflation data up to June 2022. This shows the highest year-on-year inflation level for 40 years, recording 9.4% on the CPI index and 8.2% on the CPIH index. The older RPI measure of inflation reached 11.8% up from 11.7% in May.

Inflation has increased a reasonable amount over June, up 0.3 percentage points on the CPI measure. This is principally due to the significant rise in petrol prices that took place in June. Petrol prices were 42.3% more expensive than in June 2021.

As shown in Figure 1, price rises in ‘food and drink’ continue to accelerate, up 1.1 percentage points in June to 9.8% year on year. Food prices are now rising at a faster rate compared with other goods and services. This has an impact on the poorest households as they spend more of their household income on food. Food price inflation of 9.8% is slightly behind IGD’s forecasts for food price inflation, although it is clear that inflation still has a long way to run.

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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.

The contribution of food retail to inflation, shown as the yellow bar, is now making a significant impact on inflation. IGD’s latest Shopper Confidence Index, hit record lows in June indicating that food prices are having a material effect on shoppers.

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Inflation is being largely driven by supply-side factors, especially energy and fuel prices. This is eroding food production margins, as illustrated in the chart below. Input prices for food producers continue to rise dramatically, up a further 1% in June. IGD expects these rises to feed into retail prices in the coming months.

Click chart to enlarge

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