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UK inflation reaches new 40-year high

Author: ICAEW Insights

Published: 20 Jul 2022

Latest official GDP estimate revealed UK inflation UK inflation rose for ninth month in a row in June, amid higher petrol and food prices.

The monthly GDP figures released on Wednesday 13 July 2022 by the Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) rose by 9.4% in the 12 months to June 2022, up from 9.1% in May. Core inflation – which strips out food, energy, alcohol and tobacco – stood at 5.8% last month in the year to June, down from 5.9% in the year to May.

Rising prices for motor fuels and food made the largest upward contributions to the change in CPI 12-month inflation rates between May and June 2022. The largest, partially offsetting, downward contributions to the change in rates were from second-hand cars and audio-visual equipment (principally recording media). The CPI monthly rate was 0.8%, compared with 0.5% in June 2021. This was the largest rise between May and June since the start of the historical constructed series in 1988. Rising prices for motor fuels and food resulted in the largest upward contributions to the monthly rates in June 2022. In June 2021, the main upward contribution to the monthly rates came from transport overall.

The largest movements in the annual Consumer Prices inflation rate in June 2022 came from transport and food. Within transport, the high 12-month rate in June 2022 was mainly caused by a 42.3% rise in the price of motor fuels year on year. This is the highest rate since before the start of the constructed historical series in January 1989. Average petrol prices stood at 184.0 pence per litre in June 2022, compared with 129.7 pence per litre a year earlier. The June 2022 price is the highest on record (since 1990). The average price of diesel in June 2022, which was 192.4 pence per litre, was also the highest recorded.

Food and non-alcoholic beverage prices have risen by 9.8% in the year to June 2022, up from 8.7% in May, and the highest rate since March 2009. The annual rate partly reflects price rises over the latest few months, including a 1.2% rise between May and June 2022. This monthly rise was the largest between May and June since 2008, and it follows similar monthly rises into April and May 2022.

Evidence provided by the producer price index suggests that there are more price rises to come. Producer input prices rose by 24.0% in the year to June 2022, up from 22.4% in the year to May 2022; this is the highest the rate has been since records began in January 1985. Producer output (factory gate) prices rose by 16.5% in the year to June 2022, up from 15.8% in the year to May 2022; this is the highest the rate has been since September 1977.

Services producer prices rose by 5.4% in the year to Q2 2022, up from 4.2% in the year to Q1 2022; this is the highest the rate has been since records began in Q1 1999.

Responding to the UK inflation figures for June 2022, released by the Office for National Statistics, Suren Thiru, Director, Economies, at ICAEW, said: “Inflation continued to heat up in June, intensifying the cost-of-living crisis and pushing the UK closer to recession. The acceleration in the headline rate largely reflected record petrol prices, lifted by supply concerns amid Russia’s invasion of Ukraine. Rising food prices also continued to increase the upward pressure on inflation. 

“Record producer prices confirm that businesses are experiencing an unprecedented surge in their production costs, leaving many firms with little option but to continue raising prices or to limit activity. While inflation may drop below 9% from August as the annual comparisons become more favourable, it is likely to soar above 11% in October as the energy price cap increases.

“The decline in core inflation suggests that deteriorating household finances are weakening domestic demand. If this trend continues, inflation could fall back quickly over the next year, particularly as the recent rises in energy prices drop out of the calculation. Soaring inflation means that momentum for a half-point interest rate rise in August is growing. However, tightening monetary policy too aggressively increases the risk of recession and will do little to address the global factors driving this inflationary surge.”

For further information, read the full release: ONS Consumer price inflation, UK: June 2022.

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