Inflation rate soars to 9% as energy costs “drain us dry”

The CPI inflation rate has continued its concerning rise – moving from 7% in March to 9% in April.

The energy price cap rose by 54% in April, as the cost of gas has almost doubled in a year, while electricity prices rose by a around half.

Such costs could escalate further later in the year, as the cap is expected to rise again by 30 to 50% in October after Russia’s Invasion of Ukraine caused oil and gas prices to surge.

In addition to the rising cost of energy, supermarket prices are climbing. There were steep rises in the cost of pasta (10.4%), milk (16.1%) and margarine (22.7%) for example.

As a result, the Office for National Statistics found that 14% of people are concerned about the price of food, with two in five (41%) buying less of it.

Prices in hotels and restaurants were also up 7.9%, which is partly due to the fact that VAT returned to its usual rate of 20%.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “The surge in energy prices is draining us dry, after gas prices almost doubled in a year. In April, the huge hike in the energy price cap pushed inflation to a 40-year high of 9%. Unfortunately, this doesn’t come as a massive surprise to anyone. After-all we have been living through this horrible period, so we know all-too well how expensive life is getting.

“Energy price hikes would be bad enough on their own, but we’re also having to deal with record fuel costs, eye-watering rises in supermarket prices and the soaring cost of home repairs and improvements.

“Figures out yesterday showed that, excluding bonuses, wages fell even further behind inflation, with public sector workers suffering particularly – as prices stretched way ahead of paltry pay rises. And things are set to get even worse, because the OBR is predicting the biggest fall in living standards in a generation.”

This high CPI inflation was expected, as the Monetary Policy Committee predicted it stand at 9.1% in April.

Pantheon Macroeconomics expects the inflation rate to improve in the short-term, before worsening later in the year.

The economic consultancy wrote: “Looking ahead, the headline rate of CPI inflation likely will edge down over the coming months, probably to around 8.5% by August, as the anniversary of very large increases in prices, as businesses reopened after the lockdown, is reached.

“The inflation rate for used cars also will collapse to near-zero over the next six months; prices haven’t risen since January. Motor fuel inflation also is set to ease materially over the summer, provided that Brent crude prices remain near their current level.

“Our forecast takes account of the further rise in food and core goods prices signalled by producer prices, but assumes that the run-rate of price rises in the services sector eases, now that businesses have responded to recent tax increases. Alas, the headline rate then looks set to rise to a new high of nearly 9.3% in October, when Ofgem likely will increase the default tariff cap by about 32%.

“The recent collapse in day-ahead natural gas prices will have no impact whatsoever on the October cap level, as it is calculated from Oct22-to-Sep23 futures prices, averaged over the six months to 31 July. Nonetheless, we continue to think that the headline rate of CPI inflation will fall quickly in 2023, in response to recent falls in shipping costs, easing demand for goods that were desired during the pandemic, and stabilising energy prices.

“The absence of a wage price spiral—average weekly wages excluding bonuses rose just 4.1% year-over-year in March, despite a sharp rise in average weekly hours—suggests that the MPC will be able to focus on the subdued medium-term outlook for CPI inflation and stop raising Bank Rate sooner than investors currently think.”

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