The cost of living crisis in the UK has deepened after official data revealed that the rate of inflation hit 7% in the 12 months to March 2022 – the highest level since 1992.
In February the consumer price index (CPI) rose by 6.2% and economists had “predicted a rate of 6.7%” for last month, Sky News reported. However, according to the Office for National Statistics (ONS), increased fuel prices and energy bills were the largest contributors to the March data, which for the first time also reflected the immediate effects of Russia’s invasion of Ukraine.
Grant Fitzner, ONS chief economist, said broad-based price rises saw annual inflation “increase sharply again” in March and “among the largest increases were petrol costs, with prices mostly collected before the recent cut in fuel duty, and furniture”. He added: “Restaurants and hotel prices also rose steeply in March while, after falling a year ago, there were rises across a number of different types of food.”
There were a number of factors which contributed to the 30-year high in the inflation rate, The Guardian reported. Prices rose for the following:
- Transport: 13.4%
- Furniture, household equipment and maintenance: 10.3%
- Clothing and footwear: 9.8%
- Housing, water, electricity, gas and other fuels: 7.7%
- Restaurants and hotels: 6.9%
- Food and non-alcoholic beverages: 5.9%
- Recreation and culture: 4.9%
- Alcoholic beverages and tobacco: 4.8%
- Education: 4.5%
- Health: 2.5%
- Miscellaneous goods and services: 1.9%
- Communication: 0.7%
Petrol prices drive inflation surge
With prices “rising faster than wages” there is “pressure on the government to do more to help those struggling” in the cost of living crunch, the BBC said. And the inflation figures for March “do not yet reflect” the average 54% increase in energy bills when the energy price cap was raised on 1 April.
Prices are rising at their fastest rate for 30 years, “driven by a sharp increase” in petrol and diesel prices. Average petrol prices rose by 12.6p per litre between February and March, the largest monthly rise since records began in 1990, the ONS said. Diesel also increased by 18.8p per litre this year, compared with a rise of 3.5p per litre a year ago.
“Since late last year, prices have been rising fast as pandemic restrictions have been eased and firms face higher energy and shipping costs which they have passed on to consumers,” the BBC added.
How high could inflation reach in 2022?
Rising consumer prices “erode what households can buy with their money”, the FT said. And official statistics predict that this year UK household real income “would contract at the sharpest rate since records began in the 1950s”. The March inflation report is the last one before the next Bank of England monetary policy decision on 5 May. Economist George Buckley expects interest rates to rise in May, August and November, taking the bank rate from its current 0.75% to 1.50% by the end of the year.
The Bank of England predicts that the rate of inflation will reach “around 8%” this spring. “We think it could go even higher later this year. But we expect the rate of inflation to fall considerably over the next couple of years.”
Simon French, chief economist of investment bank Panmure Gordon, warns that inflation could hit a rate of 10% in 2022. “Nothing in today’s UK CPI release for March (showing +7.0% YoY) to change our view that CPI will peak this year at around 10%,” he tweeted. “Signs of a broadening of inflationary pressures amongst core items and a big leap in input costs. All ahead of the more acute April energy squeeze.”