UK inflation rises sharply

Date : 19 May 2022

ONS has released its latest inflation data up to April 2022. Overall, this is the highest year-on-year inflation level for 40 years, recording 9.0% on the CPI index and 7.8% on the CPIH index. The older RPI measure inflation reached 11.1% up from 9.0% to February 2022.

The speed at which households are experiencing inflation is stark, up 2.1% on the March value. This is only the fourth time since the 1940’s that inflation has increased by over 2% in a month.

As shown in Figure 1, price rises in ‘food and drink’ continue to accelerate, up 0.8% over April alone to 6.7% year on year. At the same time last year ‘food and drink’ inflation was -0.5%.

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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. Inflationary pressure over April has been primarily driven by the dramatic 54% increase in the domestic energy price cap. Food retail, shown as the yellow bar now makes a considerable contribution to inflation effects. IGD’s latest Shopper Confidence Index indicates this is having a material impact on shoppers.

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Inflation is being driven by supply-side factors, especially energy prices. This is feeding into food production margins, as illustrated in the chart below. Input prices for food producers continue to rise dramatically, up 3.5% over April. IGD expects these rises to continue to feed into retail prices in the coming months.

Click chart to enlarge

IGD opinion

These inflation figures raise concerns for households, businesses and policy makers that the worst is yet to come.

The Bank of England now expects CPI inflation, to peak at around 10% in Q4 2022 before falling back to its 2% target over 2023. Persistent inflation is having material impacts on household ‘real’ incomes. Yesterday, ONS revealed that the average worker, after taking away the effect of bonuses is 4.2% worse off than a year ago.

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