Inflation hits 11.1 per cent

There had been quiet but growing optimism from some economists that inflation in Britain was nearing its peak as the CPI headline rate had fluctuated slightly – in and out of double digits – over the past few months. But that optimism was put on pause this morning when the Office for National Statistic revealed that inflation rose by a full percentage point from September, taking CPI to 11.1 per cent on the year last month.

CPI is at its highest level since 1981, and above the Bank of England’s most recent prediction for where inflation would peak. Meanwhile, real-terms wage increases are failing to keep up with price hikes. The latest data shows that the average worker is estimated to be experiencing a 3 per cent real-terms pay cut.

The largest contributor to inflation last month was – unsurprisingly – gas and electricity prices. Even with the government’s Energy Price Guarantee kicking in, the cost of heating one’s home has skyrocketed. The ONS estimates that ‘the cost of housing and household services rose 11.7 per cent in the 12 months to October 2022, up from 9.3 per cent in September 2022… the highest on record,’ with the previous record going back to the 1950s when the same inflation metric hit 11.4 per cent.

As you can see on The Spectator’s data hub, gas futures prices have come down substantially since the summer, which will provide some hope that by the time we reach spring, these disproportionally high bills will be a thing of the past. This morning’s data, however, creates an even trickier situation for Chancellor Jeremy Hunt – who is scrapping the Energy Price Guarantee for a more targeted scheme in April. Further withdrawal announcements will be made as the public experiences possibly the biggest squeeze on their bills that they’ll face. Whatever tax rises we get tomorrow will bite even harder too, as people feel their purchasing power reduce further through both inflation and a Treasury money grab.

But energy was not the only contributor to another jump in CPI. Food and non-alcoholic beverage prices rose by 16.4 per cent on the year, up substantially from September (14.6 per cent). This rate for food is at its highest since 1977, when price hikes reached more than 17 per cent on the year. It’s yet another reminder that while Russia’s war and energy costs are certainly contributing to rising inflation, it is by no means the only factor.

There is still hope that, despite CPI outpacing economic consensus this morning (which was around 10.7 per cent) the dramatic jump in energy prices last month will see price hikes slow, if not stall, as there are no more major price cap changes to factor in. But Capital Economics makes the important point this morning that while core inflation did not budge from 6.5 per cent, ‘domestic price pressures are still building’. With services inflation at a 30-year high (6.3 per cent), there is still growing pressure on the Bank of England to keep at it with the interest rate rises. We know the Bank is looking for any excuse to stick to a more dovish approach, but with inflation sitting more than nine percentage points above its target, just watching this play out is not a luxury the Monetary Policy Committee can bank on.