UK inflation is rising at its fastest rate for 30 years as fuel, energy and food costs surged.
The jump in the cost of living has put increasing pressure on households across the UK.
And things look set to worsen later this year when the government’s forecaster predicts inflation could climb to a 40-year high.
The government is under pressure to do more to help struggling households.
Inflation is the rate at which prices rise. If the price of a bottle of milk is £1 and it rises by 5p, then milk inflation is 5%.
You may not notice price rises from month to month. But right now, prices are rising so quickly and average pay is not keeping up.
In the 12 months to February, prices rose 6.2% on average.
But fallout from the war in Ukraine and rising energy prices could push inflation to a 40-year high of 8.7% in the final three months of 2022, the Office for Budget Responsibility said.
Meanwhile, the Bank of England has warned inflation could even hit double digits this year if rising energy prices push up the energy price cap further.
Prices are now rising at their fastest rate for 30 years.
There are workers in a few sectors – such as lorry drivers – who are in high demand, and whose wages are rising faster than prices.
And in April, the lowest-paid will see the National Living Wage rise by 6.6% to £9.50 an hour, which is higher than the current inflation rate.
The main reason is the rising global price of energy.
Gas prices in particular have risen sharply over the past year, but the OBR, which publishes its economic forecasts twice a year, said Russia’s invasion of Ukraine had “major repercussions for the global economy, whose recovery from the worst of the pandemic was already being buffeted by Omicron, supply bottlenecks, and rising inflation”.
Businesses are already facing higher energy, petrol and transport bills, and some are passing on the extra costs to customers.
Supply problems and higher shipping costs are also putting pressure on companies.
Next, the high street retailer, has said its prices could rise by up to 6% this year to keep up with higher costs.
Staff shortages are a particular problem in the UK, due to Brexit and the pandemic, and are prompting some employers to raise wages.
However, this can itself contribute to inflation. The bakery chain Greggs has warned it may put up its prices for a second time this year to cover increased labour costs.
The Bank of England’s traditional response to rising inflation is to raise interest rates. It has done this three times in the past few months.
That means some people who have borrowed money could see their monthly payments go up, especially on mortgages tied to the Bank of England’s rates.
The idea is that when borrowing is more expensive, people will have less money to spend. As a result, they will buy fewer things and prices will stop rising as fast.
But when inflation is caused by external forces, such as the global squeeze on energy prices, then this might not be the answer.
The government might choose instead to cut taxes for consumers on items that are rising quickly. Chancellor Rishi Sunak cut fuel duty by 5p per litre in his Spring Statement, for example.
A number of measures will hit UK households:
Inflation is measured by a body called the Office for National Statistics (ONS), which notes the prices of hundreds of everyday items.
These items are called the “basket of goods”, and they’re being constantly updated. For instance, in 2022 items such as tinned beans and sports bras were added, reflecting a rising interest in plant-based diets and workouts.
The ONS releases its measure of inflation each month, showing how much these prices have risen since the same date last year. This is known as the Consumer Prices Index (CPI).