Laura Suter, head of personal finance at AJ Bell, comments on the latest inflation figures:
“Inflation leapt higher than expected in July, topping 10.1%, taking us to the highest rate in 40 years and into the dreaded double-digit territory. The usual culprits of energy bills, mortgage costs and food prices all took the figure up, with prices now rising at five times the rate they were this time last year.
“The eye-watering increase in the price of food in July will be dismal reading for many families already struggling to pay for their supermarket shop. Food inflation reached 12.7% in July, having seen the highest monthly growth in more than 20 years. And there’s no option of hunting out food that hasn’t risen in price, as costs went up in every category the ONS records, with dairy, bread and cereals seeing the biggest uptick. We’ve seen swathes of shoppers switching to discount supermarkets or trading down from branded products to own brands, and that will accelerate as food prices continue their climb upwards.
“Even though the energy price cap hasn’t moved since April, electricity and gas prices still drove the inflation figure higher because the comparison is with last July. During that time gas prices have risen by 96% while electricity has shot up 54%. And once again petrol prices drove inflation higher. Despite prices at the pump falling through July they still remain higher than a year ago and have a long way to fall before they return to previous lows. So while filling up a tank isn’t as painful as it was a few months ago, the impact on the inflation figure is still being felt.
“Housing inflation hit a 30-year high thanks to the constant hiking of mortgage rates, following Bank of England Base Rate increases. This has also filtered through into rents, with landlords putting up prices to help cover their rising costs.
“People having a summer of fun has also helped to drive prices up. It’s a stark reminder that while many are struggling to pay their bills there is a large chunk of society that is managing just fine or still dipping into their lockdown savings for recreation. Spending on games, toys and hobbies all rose, while the great summer holiday getaway also helped fuel price rises. We also saw the biggest increase in prices for restaurants and hotels on record – even leaping ahead of when the Eat Out To Help Out scheme was launched during the pandemic. A rise in people staycationing will have helped to push up these numbers, as horror stories from UK airports put people off foreign travel. But some people will also be out enjoying themselves, making hay while the sun shines, before the tough winter ahead.”
Rail fares:
“Traditionally July’s inflation figure is used to set the rate at which rail fares rise in the next year. But at the 11th hour the Government stepped in to say that commuters will be protected from the full inflationary increase. It has also delayed the point at which new rail fares kick in from January next year to March – giving rail passengers a bit longer before they are hit with price rises.
“Frustratingly, the Government hasn’t actually said what the increase will be. The RPI figure for July is 12.3% so all we know is that the increase will be less than this. But there is a big difference between a price increase equal to this year, which was 3.8%, and a price increase of 12%, which is still technically lower than the July RPI reading. What’s clear is that commuters are going to face another significant rise in costs next year, they just don’t know exactly what it will be yet. What’s more, the Government regulation only covers around half of all tickets, including season tickets, so rail passengers on other tickets could still see whopping, inflationary-level increases.
“The issue is that the current system of taking the inflation reading from the previous July to uprate rail fares almost half a year later means the fare increase will always be out of step with the prevailing inflation rate. This is further exacerbated by moving the date when the price increase kicks in to the following March – meaning the inflation figure is almost a year old by the time it is applied to ticket prices. And a further ridiculous aspect of the system for commuters is that the higher RPI measure of inflation is used, despite it being widely discredited.”
