Inflation jumped again in December, a headache for the Bank of England, the Chancellor and millions of hard-pressed families.
It is at its highest for 30 years.
Prices were rising at 5.4%, up from 5.1% in November. Inflation was at 0.6% just two years ago.
City economists now expect it could go as high as 7% once energy price hikes kick in. It was last at that level back in March 1992 when it was 7.1%.
Yesterday, official figures put pay rises at 4.1%, showing that inflation was already outpacing income growth.
Alpesh Paleja, CBI Lead Economist, said:
“We’ve not seen the end of rising inflation yet. We expect it to peak in the months ahead, not least if, as expected, the energy price cap is raised.
“With prices on the rise and real wages already falling, it’s likely households will face a cost-of-living crunch for much of this year.
“And with price pressures further up the supply chain still strong, the cost of doing business will also continue to climb sharply.
“It’s now vital that the Government comes forward with urgent solutions to protect the most vulnerable consumers, who will struggle most with anticipated price rises. Solutions must also be found for firms that are struggling with ever-growing cost burdens, especially energy-intensive businesses. This should be a precursor to longer-term energy market reforms, to build resilience against future energy price shocks.”
The Bank of England now seems sure to raise interest rates on February 3 when its Monetary Policy Committee meets for the first time this year.
The City has pencilled in a rise from 0.25% to 0.5%.
Chancellor of the Exchequer, Rishi Sunak said:
“I understand the pressures people are facing with the cost of living, and we will continue to listen to people’s concerns as we have done throughout the pandemic.
ONS Chief Economist Grant Fitzner said:
“The inflation rate rose again at the end of the year and has not been higher for almost 30 years.
“Food prices again grew strongly, while increases in furniture and clothing also pushed up annual inflation.
“These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.
“The closures in the economy last year have impacted some items but, overall, this effect on the headline rate of inflation is negligible.”
