IInflation will stay with us for a few more years. That’s the growing consensus across the city and among economists, who believe that the effects of higher fuel prices, the crippling cost of imported goods, and labor shortages will be longer in many industries than initially thought.
Last week, all eyes were on higher gas prices and Ofgem’s estimate that the energy price cap would rise by around £800 in October to an average of £2,800 per household.
The regulator’s bleak outlook has fueled fears that a higher figure is on the way if the cap is revised in early 2023, as gas and electricity prices are pushed higher due to this dynamic.
The focus this week is on groceries, how much food is produced in the UK and the cost of imported products which has driven up prices in stores.
Some inflation watchers have argued that rationing is partly to blame. Jack Munro, a food writer and anti-poverty activist, argues that cheaper everyday groceries are disappearing from the shelves, leaving struggling families with no choice but to purchase more expensive alternatives.
That means inflation is higher for the poorest 20% of people than for everyone else, Monroe said. She is not alone in her assessment.
However, on Monday, she met with the National Statistics Office, which said that it had found many low-priced goods in stores, and that, according to its own surveys, increases in the prices of these goods were no higher than increases in food prices in general.
It is difficult to separate Monroe’s food inflation monitor from the basket of pasta, potatoes and sausages that the Office for National Statistics uses.
There is no doubt that the poorest are among the losers, whether they are young families or retirees who live only on the state pension.
The Institute for Fiscal Studies believes that rising domestic energy prices alone have pushed the inflation rate to 14% for the poorest decile of households, versus 8% for the richest.
Prices are up about 20% so far this year, according to the Food and Agriculture Organization of the United Nations’ Food Price Index.
The huge price shock in the fertilizer market poses the risk of food costs continuing to rise, especially if sanctions are imposed on Russia and Belarus – historically important sources of fertilizer for the global economy.
Another factor keeping factory-manufactured prices high is China, which is imposing draconian closures on manufacturing hubs and ports amid the Covid-19 outbreak.
In the UK, Rishi Sunak said the £15bn energy support package announced last week was for most of the money for low-income families, with £650 for each of the UK’s 8m households receiving social benefits – which they are expected to spend on spiraling energy bills rather than stimulating renewed demand for goods and services.
But the parallel £400 subsidy for all bill payers due in October could be spent regardless of income on goods from China or the many miscellaneous services hit by a labor shortage in the UK, where additional demand only raises prices, and it will drift higher.
Bank of England policymakers, concerned that inflation has more legs, could add some additional rate hikes this year to their current forecast of another 0.5 percentage point. This will bring Threadneedle Street’s interest rate above 1.5% by the end of 2022.
Higher interest rates are another form of inflation, as is Social Security’s rise in Snack and income tax limits being frozen. They put pressure on employers to keep raising wages – which leads to additional costs that affect daily prices and hurt the poor the most.
#10 He should be familiar with small business warning
It would be disastrous if 500,000 companies disappeared under the wave of inflationary costs, the Federation of Small Businesses (FSB) predicts.
No government will survive this dramatic business meltdown. For this reason, the Treasury is likely to dismiss this as an exaggerated and impetuous estimate. However, it would be foolish officials to dismiss the gist of the argument.
For one thing, many companies feel that they are seen within government – especially in the 10th place – as an endless source of cash to support the government’s policy agenda.
Minimum wage increases are imposed each year in addition to general wage increases to boost the incomes of low-income earners. Promises of store-price fixes inevitably get delayed every year, leaving high street stores paying relatively high prices compared to Amazon stores. Employers’ social insurance has risen to more than 15%. The corporate tax will be increased from 19% to 25% from next year.
All it takes is energy bills to hit homes to crash businesses and the FSB’s forecast will be shockingly accurate. Many companies currently have fixed energy contracts. It will expire this year or 2023. Then there is a problem.