Monday, February 26, 2024

Inflation records a shock RISE to 10.4% driven by surging food and drink costs

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Inflation recorded a shock rise today driven by surging food and drink costs – piling pressure on the Bank of England to raise interest rates tomorrow.

The headline CPI rate had been expected to dip into single figures, but stunned analysts by going up from 10.1 per cent to 10.4 per cent in the year to February.

The move sends a wrecking ball through hopes that Threadneedle Street could hold off increasing the base rate, after turmoil on the markets over the meltdown of Silicon Valley Bank and Credit Suisse. The Pound immediately surged against the US dollar, as traders shifted position on the prospects for a hike.  

Chancellor Jeremy Hunt warned that falls in inflation are not ‘inevitable’, even though the Office for Budget Responsibility and the BoE have both forecast sharp rises over the coming months.  

Worryingly while previous upticks in CPI have been fuelled by energy costs, the Office for National Statistics pointed to rising prices in pubs and restaurants, as well as core food and drink.

Most economists had expected CPI to fall to 9.9 per cent in February.

Food and non-alcoholic drinks prices rose by 18.2 per cent in the year to February , up from 16.8 per cent in January – with that annual rate now at is highest since 1977.

Shortages of vegetables such as tomatoes and peppers in recent weeks – which saw rationing in some supermarkets – were largely behind the alarming peak.

The headline CPI rate had been expected to dip into single figures, but stunned analysts by going up from 10.1 per cent to 10.4 per cent in the year to February

The Pound immediately surged against the US dollar, as traders shifted position on the prospects for an interest rate hike tomorrow

Separate research from Which? has looked at the essential items worst hit by rising prices

Separate research from Which? has looked at the essential items worst hit by rising prices

Mr Hunt said: ‘Falling inflation isn’t inevitable, so we need to stick to our plan to halve it this year.

‘We recognise just how tough things are for families across the country, so as we work towards getting inflation under control we will help families with cost-of-living support worth £3,300 on average per household this year.’

Laying out the reasons for the surprise upward shift, ONS chief economist Grant Fitzner said: ‘Inflation ticked up in February, mainly driven by rising alcohol prices in pubs and restaurants following discounting in January.

READ MORE: How some shopping essentials ‘doubled in price’ over a year 

Thousands of shopping basket essentials have risen sharply in price – and some products have doubled in just one year, it has been revealed.

The cost of budget items – which many have turned to in the cost of living crisis – is shown to be increasing the fastest, analysis of more than 25,000 products shows.

Research by Which? found the annual inflation rate for prices of popular food and drink in February was 16.5 per cent across eight big supermarkets.

On average, budget range prices are up by 22.9 per cent while own-brand prices are up 19.7 per cent. Premium supermarket lines increased by 13.8 per cent and big brands by 13.3 per cent.

‘Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing.

‘These were partially offset by falls in the cost of motor fuel, where the annual inflation rate has eased for seven consecutive months.’

While economists expect prices to drop rapidly later this year, inflation remains more than five times higher than the Bank of England’s 2 per cent target.

The central bank will weigh the need to control inflation against concerns about the fallout from global banking troubles when it decides whether to raise interest rates tomorrow.

The BoE has approved ten consecutive rate increases since December 2021, pushing its key bank rate to 4 per cent.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘There is no respite for punishing inflation for consumers and companies, with prices becoming even hotter in February. 

‘There had been high hopes that it would finally have retreated from its double-digit heights, making a march downwards, but it has headed back towards the summit. 

‘As restaurants and hotels ratchet up prices faced with the high costs of food and labour, its feeding through to unpalatable hikes for customers. 

‘Shoppers are struggling with higher food and clothing prices too, with the cost-of-living headwinds showing little sign of dying down. 

‘It had been touch and go about whether the Bank of England will raise rates but now with consumer price inflation rising to 10.4 per cent on the month, it looks increasingly likely a hike will voted through tomorrow. 

‘Although the banking turmoil will be front of mind, this latest snapshot and ongoing worries about a tight labour market are likely to tip the balance in favour of a rate hike.’ 

Shadow chancellor Rachel Reeves said: ‘The reality is that under this Tory Government, families are feeling worse off and nothing is working better than it did 13 years ago.

‘The cost-of-living crisis is still biting hard and taxes are rising, yet the Government chose to use the Budget to hand a £1billion bung to the top 1 per cent.

‘Labour will stand with working people and with our mission to secure the highest sustained growth in the G7, make families across every part of our country feel better off.’

Alpesh Paleja, the Confederation of British Industry’s lead economist, said that ‘while inflation rose in February, the outlook for the months ahead is looking more benign’.

‘But while we expect inflation to fall back over this year, the firmness in domestic price pressures is something that the Bank of England will be keeping a close eye on.

‘And despite further falls over the coming months, this year will still be a high-inflation environment for both households and businesses.’

It comes as Which? Revealed that thousands of shopping basket essentials have risen sharply in price – and some products have doubled in just one year.

The cost of budget items – which many have turned to in the cost of living crisis – is shown to be increasing the fastest, analysis of more than 25,000 products shows.

Research by the consumer group found the annual inflation rate for prices of popular food and drink in February was 16.5 per cent across eight big supermarkets.

On average, budget range prices are up by 22.9 per cent while own-brand prices are up 19.7 per cent. Premium supermarket lines increased by 13.8 per cent and big brands by 13.3 per cent.

They are adding hundreds of pounds to annual food bills and are way ahead of rises in salaries, pensions and benefits.

The tracker shows prices were up 24.4 per cent at Lidl, compared to 22.7 per cent at Aldi, 17 per cent at Asda, 16.7 at Morrisons, 14.2 at Waitrose, 14.1 per cent at Sainsbury’s, 14 per cent at Tesco and 10.3 per cent at Ocado.

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