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Shoppers hit by inflation shock
Jonathan Prynn25 Mar 2009
- One in three restaurants 'making loss'
- 24% drop in cost of a hotel room
- Retailers on the rack as rent bills arrive
- Caution's the word, Bank governor warns Brown
- How could so many experts get it so badly wrong?
- Anthony Hilton: This blip will not bring a policy change at the Bank
- King defends tactics after shock climb in inflation
SOARING prices and a weak pound have brought the shock return of inflation, it was announced today.
The Government's official measure, the Consumer Prices Index, jumped from three per cent to 3.2 per cent last month.
It stunned City economists, who had been predicting a fall to 2.6 per cent.
The increase was also attributed to rising supermarket prices and many shops' decision to reverse the 2.5 per cent cut in VAT brought in by the Government in an attempt to stimulate the economy. Gas prices went up year on year by 33 per cent.
Another major contribution to the rise in the CPI came from fresh vegetables, which have gone up 23.8 per cent in a year and almost five per cent in a month. The Office for National Statistics said carrots, cucumbers and courgettes were among those rising fastest in price. Other foods that have gone up dramatically include pizza and mayonnaise. Richard Lim, a spokesman for the British Retail Consortium, said: "The weak pound has increased the cost of imported food, such as certain fruits and vegetables, which aren't harvested here at this time of year.
"The weak exchange rate has also made UK produce more attractive for overseas buyers, restricting supplies of beef and lamb at home and pushing prices up. Non-food goods such as clothing, footwear and some electricals are cheaper than they were this time last year."
Alan Clarke, UK economist at BNP Paribas, said the inflation figure was "much higher than expected, with the exchange rate probably to blame for now."
Transport prices also rose, reflecting an increase in the price of petrol of 3.2p per litre between January and February, the ONS said.
About 70 per cent of fresh fruit at this time of year comes from overseas.
ONS statistician Rob Pike added that the cut in VAT from 17.5 per cent to 15 per cent which was introduced in December, was being reversed on the high street. He said: "We have seen many prices return to the previous selling price in November, or even gone beyond that. And that is quite widespread."
The broader measure of inflation, the Retail Prices Index, did fall slightly from 0.1 per cent to nought per cent, but this was also less than expected.
Most forecasts predicted that the RPI, which includes the cost of housing, would go negative for the first time since March 1960, ushering in a period of deflation.
The RPI is widely used by employers as a benchmark for wage increases and its fall to zero means that most workers will get a pay freeze or only a nominal rise this year.
John Philpott, chief economist at the Chartered Institute of Personnel and Development said: "For millions of workers, this will be a spring and summer of pay depression, as pay rises give way to widespread pay freezes or pay cuts.
"For the vast majority of workers, accustomed as most of us are to an annual boost to our pay packets, a pay freeze or pay cut will feel like a hardship, especially while the CPI measure of inflation continues to rise."
The unexpectedly high level of inflation forced Bank of England Governor Mervyn King to write a letter to Chancellor Alistair Darling explaining why it is still above the two per cent target.
Economists pointed to prices that are expected to fall over the coming months.
Gas and electricity prices, though sharply higher than a year ago, are now starting to subside as the effect of cheaper oil starts to flow through.
They also said that the latest rise in the CPI was unlikely to deter the Bank of England from continuing with quantitative easing or keeping interest rates at 0.5 per cent for an extended period.
Vicky Redwood, of Capital Economics, said: "Today's inflation figures do not change our view that there is a significant danger of a broad and long-lasting bout of falling prices."
Letters between the Bank of England and the Chancellor explaining the rise in inflation
Letter from Governor to Chancellor (pdf)
Reply from Chancellor to Governor (pdf)
Reader views (18)
You are not kidding about prices. I have mobility problems and for years have shopped online for my groceries from JS. At the beginning it was a struggle to spend £70 to get a free delivery, then the margin went to £100 so I doubled some orders. I have recently started my latest shop, the beauty of which you can start and add daily or whenever needed and it is still there and so far the cost of it has risen above that paid in December (nearly £300) with many luxuries for Christmas, but I am only ordering the day to day basics to last for a month. Perhaps I should take friendly neighbours up on their offer and get them to buy my shopping for me from Mr Patel as although he may be more expensive in the long run he is only paying his overhead unline JS who is cashing inon the bandwagon.
- Anon, UK, 25/03/2009 07:39
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To that smug person with the “shopping basket” inflation meter from the “Let them eat cake” government department:
Council tax up
Rents up
Food prices up
Petrol going up AGAIN
Gas/electricity bills have NOT come down
State pension increase swallowed up by rent increase
Who the devil is concerning themselves with the price of DVD’s in this situation?
- Brianonthecam, Cambridge UK, 24/03/2009 22:24
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Worried about inflation at just over 3% this is peanuts compared to the 15%, 18% higher...higher rates of tory government, you know when house prices started to be worth funny money. Problem now is what goes up can com down and many find they are negative equity!!
So Ccucumbers are dear then let them eat Asparagus tips!
- Melvyn Windebank, Canvey Island, Essex, 24/03/2009 18:54
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Once upon a time someone shouted "recession!" and, hey presto, everyone hid their money and claimed they were doomed. DOOMED!!???
And the 21st century gold rush is at full speed. If you can find your way through the dust cloud?
- Peter Seekings-Foster, Mildenhall, Suffolk., 24/03/2009 17:41
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The price of clothes may be down for Spring/Summer but there are massive price hikes in the system for Autumn/Winter. Most clothes are sourced in euros or dollars and the fall in the pound means that importers forward ordering for the Autumn are facing the same price increases holiday makers face when they go to Euroland.
Clothing has been subject to years of deflation but the worn situation has now reversed.
- Anthony, London, 24/03/2009 17:40
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Where is the soaring inflation that this article describes? 3% to a massive 3.2% - oh silly me that really is one massive increase. Would the last person please turn the light off.
- Andrew, St. John's Wood, London, 24/03/2009 17:01
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No prices are coming dowm so Gordon is dpimg very well.
- Keith Price, Luton, England, 24/03/2009 16:41
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The price of cars and houses etc have dropped, but we dont buy those everyday, the price of petrol continues to rise anmd the price of gas and electricity has accelerated out of control and even though the wholesale price of these everyday purchases has fallen , this has not been passsed on to the retail price. Food supplier costs have risen due to thiese issues and they have passed there price3s on to the supermarkets who in return have passsed them onto us.
Brown you Moron if an idiot like me can see this , why cant an economic genious like you pick it up.
The man is a complete ------ ( fill in the blanks )
- Brian, Wiltshire, 24/03/2009 16:22
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Bean Brown says it's OK he is going to save us.
- Steveo, London NW1, 24/03/2009 16:22
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As long as Crash Gordon is "prime minister" the pound sterling will remain pariah. No other nation wants to invest in this useless country anymore.
- Georgie, Islington, London, 24/03/2009 16:08
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Stunned!!! Are these people so detached from the real world that they never do a weekly shop? You do not buy TVs, shirts, etc. on a weekly basis but you do food and energy. Since the £ plunged against the Euro some food have gone up by nearly a third. Apparently this is good for our exports but we do not make much anymore do we!
- Michael, London, 24/03/2009 16:07
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If so called 'experts' and 'economists' are stunned that inflation is increasing then they should not be in the job-anyone with an iota of common sense could see months ago, when slashing interest rates caused sterling to collapse, that essential imports would increase in price. Meanwhile, more 'experts' in the Bank of England are now printing money-and in denial of the fact that this will cause massive inflation in due course. It really beggars belief that so many fools seem to be in positions of power...
- Jon Kent, Hertford. UK, 24/03/2009 15:33
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This is no suprise. You only have to look at the price of bread, dairy products and meat to know that food has gone up. Factor in higher utility bills, coucil tax and the decline of the £ which means we are importing inflation it should come as no suprise that inflation is rising. Even the Goverment preferred method of calculating cannot disgusise this. In any event the Goverment wants rampanent inflation becuase it erodes debt, makes Govt programmes more affordable, etc etc. Quantative easing will result in hyperinflation in about 18 months time and with it will come a decline in people living standards. Its ineviatble
- Rupert, London, 24/03/2009 15:32
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I'm 'stunned' that I don't even have tertiary education yet I seem to be able to predict what will happen in the UK economy a year or two before people who have spent their whole lives studying it.
- Roz, Chamonix, France, 24/03/2009 14:37
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Why is this a surprise? Anyone who has to pay for their own shopping, fuel and bills (i.e. not MPs) knows that staple items cost more today than last year, and are paid for out of a shrinking pay-packet.
- Nobby Clark, Perth, Scotland, 24/03/2009 11:42
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More smoke and mirrors. We will be told that wages should be frozen or cut because inflation is at a record low. Yet at the same time we will be paying more for basic items such as food, clothing and utilities. I hope Brown lives a long and healthy life so he can see at first hand the almighty mess he has created as a legacy to future generations. Third world here we are.
- Gazza, london, england, 24/03/2009 11:18
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Just as we always knew, CPI as a measure of inflation (flat screen et al) is a complete irrelevance.
- Larry Harris, Amsterdam, NL, 24/03/2009 11:09
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No economist, but seems CPI is EU referenced inflation or "real world", the RPI is frozen pay rises for everyone including pensioners. Bank rate for savers also practically zero. How will printing money and slashing the value of the pound in your pocket help keep real CPI inflation down? What a mess!
- Hawkins, Dorset UK, 24/03/2009 10:37
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