UK inflation hits fresh 40-year high of 9.4% as fuel prices rise

Annual rate in June up from May’s 9.1% figure and exceeds analysts’ expectations.

Source > Guardian

By Larry Elliott Economics editor

20 Jul 2022 07.01 BST

Rising petrol and diesel prices for motorists and dearer food pushed Britain’s annual inflation rate to a fresh 40-year high of 9.4% last month.

Figures from the Office for National Statistics (ONS) showed the government’s preferred measure of the cost of living – the consumer prices index – was up from May’s 9.1% figure.

Inflation, which stood at 2.5% in June 2021, has now risen for nine months in a row and the Bank of England is expecting it to peak at above 11% when energy bills rise again in the autumn.

The City had been forecasting inflation would pick up to 9.3% after the price of unleaded petrol rose by about 20p a litre in June. Markets are expecting the Bank to respond to the highest inflation since 1982 by raising interest rates by either 0.25 or 0.5 percentage points next month.

Prices rose by 0.8% between May and June – the highest increase since modern records began in 1988 – compared with a 0.5% jump in the same month a year earlier.

The ONS chief economist, Grant Fitzner, said: “Annual inflation again rose to stand at its highest rate for over 40 years. The increase was driven by rising fuel and food prices; these were only slightly offset by falling secondhand car prices.”

The UK’s statistical agency said the cost of motor fuels had risen by more than 42% in the year to June, with petrol and diesel hitting new highs last month. More expensive fuel was only partly offset by a drop in the price of secondhand cars.

Food was the other big factor behind the inflation rate rise, with particularly sharp increases in the cost of milk, eggs and cheese all contributing to a 1.2% increase between May and June and a 12-month rise of 9.8%.

Core inflation – which strips out food, energy, alcohol and tobacco – stood at 5.8% last month, down from 5.9% in the year to May.

Yet more inflationary pressure could be in the pipeline, according to separate ONS data for producer prices, which measures how much firms are paying for their fuel and raw material and the prices they charge their customers.

“The cost of both raw materials and goods leaving factories continued to rise, driven by higher metal and food prices respectively,” Fitzner said. “These increases saw raw materials post their highest annual increase on record, with manufactured goods at a 45-year high.”

The chancellor, Nadhim Zahawi, said: “Countries around the world are battling higher prices and I know how difficult that is for people right here in the UK, so we are working alongside the Bank of England to bear down on inflation.

“We’ve introduced £37bn-worth of help for households, including at least £1,200 for 8 million of the most vulnerable families and lifting over 2 million more of the lowest paid out of paying personal tax.”

His Labour counterpart, Rachel Reeves, said: “The cost of living crisis is leaving families more worried every day but all we get from the Tories is chaos, distraction and unfunded fantasy economics.”

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