Food Prices Push Britain's Inflation to 10.1%

by Wall Street Rebel - Michael London | 08/18/2022 5:35 AM
Food Prices Push Britain's Inflation to 10.1%

The year-over-year increase in consumer prices in the United Kingdom was 10.1% in July, the highest yearly rate seen in the country in the past four decades. This increase made the already existing pressure that people were feeling as a result of the economy much worse.


The annual percentage increase in consumer prices in the United Kingdom for July was 10.1 percent compared to the previous July. It was the fastest pace since 1982, and it has increased the strain that is being placed on household budgets that are already being stretched by rising costs of electricity and food.

The annual inflation rate has reached double digits for the first time in almost four decades due to rising food prices. The price of food alone increased by 2.3 percent from June to July, marking the fastest monthly increase in the past 21 years, with major price hikes among basics such as bread, cereal, milk, cheese, and eggs.

The rise in costs at the registers comes at a time when Britain is in the midst of a campaign to determine who will serve as the country's next prime minister, which has left the nation in a leadership void, and policy answers are still up in the air.

According to the data released by the Office for National Statistics on Wednesday, consumer prices increased by 0.6 percent compared to the previous month. In the month of June, the annual rate of inflation was 9.4 percent. This was a faster pace of inflation than what was anticipated by economists.

Price inflation has evolved into a serious global issue, causing concern for people and central bankers across the globe, from Australia to the United States, and is compounding the difficulties faced by legislators. As a result of pandemic-related supply chain disruptions, which are driving up the price of traded goods, and then Russia's invasion of Ukraine, which has set off an energy crisis, particularly in Europe, many countries are experiencing inflation rates that are at their highest levels in multiple decades.

Nevertheless, the rate of inflation in the United Kingdom stands out. Prices are increasing at a rate that is higher than those seen in both the United States (8.5 percent) and the main economies in the eurozone (Germany (8.5 percent), France (6.8 percent), and Italy) (8.4 percent).

There are indications that inflationary pressures are growing more persistent as price hikes permeate deeper into the economy of the United Kingdom and as an increasing number of businesses pass on cost increases to their customers. For the past few months, the price of energy has been a primary contributor to inflation; however, the rising cost of food has surfaced as a significant factor in recent weeks.

The tight labor market in Britain is another risk that has recently come to light. Companies are fighting for personnel by increasing salaries and offering significant bonuses in order to attract workers. The salary growth has been above recent historical averages, which is adding to the pressures of inflation.

After excluding food and energy costs, the year-over-year inflation rate increased to 6.2 percent in July, an increase from 5.8 percent the previous month.

It appears that supply chain problems, which had been a major driver of inflation among goods, are beginning to ease, as suggested by a fall in the annual price growth of furniture, household goods, and used cars. There are signs that supply chain problems, which had been a major driver of inflation among goods, are beginning to ease.

According to the estimations provided by the statistics office, prices at restaurants and hotels shot up by 9 percent in the month of July, marking the fastest annual increase in the past three decades. Price hikes for services, a broad category that includes haircuts and public transportation and less directly influenced by global pricing, increased by 5.7 percent in July, which was significantly higher than its average of 2 percent over the previous decade.

The anticipated high point of inflation, predicted to occur in the fall and coincide with the increase in the cap placed on home energy bills in Britain, is still a few months away. According to the Bank of England projections, the economy might enter a protracted recession due to rising energy prices leading to a decline in consumer expenditure and businesses being restrained from expanding.

The information that was made public on Wednesday makes the job of the central bank, which is entrusted with reducing inflation back down to its target of 2 percent, that much more difficult. Since December, policymakers have been steadily increasing interest rates to rein in spending and combat inflation, which has consistently surpassed predictions. And to curb inflation, they raised interest rates by half a percentage point this month, marking the most significant increase in that parameter in the past 27 years.

However, current projections for economic growth are not very optimistic. The economy had a modest decrease in output during the second quarter, causing momentum to be lost just in time for what is anticipated to be a challenging winter for many. There is a possibility that the Federal Reserve will respond to rising prices by tightening monetary policy to an excessive degree, which might make the current economic slowdown even worse. According to the bank, there is a possibility that inflation will drop below the target level because international influences on inflation are easing, and domestic pricing pressures are declining as a result of a sluggish economy.

Although the central bank has been warning of an impending recession, market participants anticipate that it will continue to increase interest rates as inflation continues to rise.

As of right now, the inflation rate is steadily climbing, which is ringing an increasingly loud alarm about a problem in the cost of living. This is because the price of more goods and services, including groceries, is rising. In the month of October, households are being warned that their typical energy bill may reach 3,500 pounds (about $4,240), which is a rise of three times what it was in the previous year.

Ali Khan, an Uber driver in his forties who lives in south London, shared his family's financial struggles by stating, "We are trying to conserve money. Therefore, we are buying less." When he went grocery shopping for his family, he would spend £50, but now the same basket will set him back £75. Wednesday was the day he made this statement: "The prices are going up and up every day." "I have a great deal of concern."

Households are waiting for confirmation of the adjustment in energy bills that are expected to take place later this month. Meanwhile, they are also waiting to learn who will succeed the current prime minister. On September 5, the winner of the race inside the Conservative Party for the top post will be determined, and in the meantime, the caretaker government is not making any fresh commitments to lessen the burden on households.

Liz Truss, the current foreign secretary, and front-runner to become the next prime minister, or Rishi Sunak, a former chancellor of the Exchequer, will be the next prime minister of the United Kingdom. Economic policy has been one of the primary dividing lines between the two candidates. Ms. Truss prioritizes tax cuts to spur Britain's economy into growth, rather than direct payments. Mr. Sunak argues that inflation must be controlled before taxes can be reduced.

The frustration and anxiety caused by the ever-increasing living cost have not subsided. Train operators and rail personnel across the country plan to go on strike again this week over salary and working conditions issues. They will shortly be joined by postal workers and dock workers at several of the busiest ports in the country, who are walking off the job to demand pay that is more closely tied to inflation.

Even if earnings across the country are increasing at a rate that is more than twice as fast as the rate at which they were expanding on average in the decade before the epidemic, they are not yet able to keep up with rising prices. The agency reported on Tuesday that compensation, excluding incentives, had decreased by three percent year to date until the end of the second quarter when adjusted for inflation. It was a drop that set a new record.


                    UK Inflation Rises 10.1% in July to 40-Year High




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