Inflation soars as price cap rise bites

Danni Hewson
18 May 2022

•    Inflation hits 40-year high at 9%
•    The hike in the energy price cap contributed the most to the jump – Electricity up 54%, Gas 96%
•    Return to 20% VAT in hospitality adds to the pain with restaurant and hotel prices up 8%

Danni Hewson, AJ Bell financial analyst, comments on today’s ONS inflation figures:

“It’s a massive jump from seven to nine percent in just a month but anyone in charge of household budgets won’t be surprised. Nor will they be surprised that the colossal hike in the energy price cap, which horrifyingly protects consumers from the worst effects of energy inflation, makes for the biggest contribution to the jump. Finding the extra £700 a year just to heat and power homes would have been a shock all by itself but when it comes alongside record high prices at the pump and food inflation, adding tens of pounds to the weekly shop, there’s little wonder poverty campaigners are pushing hard for the government to take further action. 

“Dubbed ‘Awful April’ the month brought about a slew of rises as mobile phone operators put up their tariffs and the government’s VAT reduction on hospitality also ran its course. Popping in for a coffee suddenly became just that little bit more expensive, a thousand cuts slicing away at wage packets that simply aren’t keeping up with the pace of change. 

“April blasted through budgets like a perfect storm as a resurgence of global demand clashed with a sudden supply shock brought about by the war in Ukraine.  In the UK the added burden of that price cap change has propelled it to the top of the G7 inflation leader board, a plaudit no country wants to burnish. 

“Few sectors have been left untouched because of the nature of where prices have shot up and looking forward, with prices leaving the factory gate and prices for raw materials also surging by record numbers last month, there looks to be little respite on the cards. 

“Whilst the intensity of last month’s shock won’t be repeated, at least until the next price cap change in October, the one thing consumers really need – price drops – aren’t likely for many months to come. Pressure has been building for businesses to protect consumers from the worst of the hikes and in some cases that has been possible, but not all businesses have the kind of cushion which will allow them to nibble away at margins. Smaller businesses in particular are fighting their own battles with inflation and looking ahead the prospect that trade will suffer, that the much-needed dream of a post-covid boom has disintegrated, replaced by fears that recession has already grabbed hold.”

Danni Hewson
Financial Analyst

Danni spent more than 19 years at the BBC, presenting and reporting on business news across a variety of programmes – including BBC Breakfast, BBC News Channel, BBC Look North and latterly Radio 5 Live’s flagship business programme ‘Wake up to Money’. She is now responsible for producing analysis and commentary across a broad range of subjects at AJ Bell, from financial markets, to economics and personal finance.

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