Inflation hits 9% in the UK, the highest rate in over 40 years

This morning, the Office of National Statistics (ONS) revealed that the inflation rate in the UK has jumped to 9%. This is the highest figure the UK has seen in over 40 years, marking the worst cost-of-living crisis since 1977.

In fact, the UK now has a higher rate of inflation (9%), than any of the G7 countries, including Germany (7.4%) and France (4.8%).

Higher fuel and food prices, driven by the Ukraine war, are also pushing the cost of living up, with inflation expected to continue to rise this year. Economists are predicting inflation to hit 10% by October.

The ONS said the rising cost of raw materials for food products, transport equipment and metals meant prices were climbing in goods leaving factories as manufacturers passed on higher costs.

Earlier this month we reported on the dairy crisis, where fuel prices were threatening spiralling costs of milk and cheese. This is still on the horizon, as average petrol prices stood at £1.62 per litre in April 2022, the highest recorded by the ONS, compared with £1.26 per litre a year earlier.

The effect on the food industry
Retailers – both independent and larger – will be worried by the new figures. It signals economic chaos in real terms for the food industry, and trade bodies across the sector are issuing warnings. 

Karen Betts, chief executive of the Food and Drink Federation (FDF), told Speciality Food, “Today’s inflation figures are very sobering, with food and non-alcoholic drinks prices rising by 6.7%, slightly more than food manufacturers’ had feared.

“This is a very worrying time for many households, and food and drink businesses are continuing to do everything they can to contain food-price inflation. However, the pressures on both large and small businesses are immense. 

“Ingredient price rises have been relentless for more than a year now, as a result of pressures in the global supply chain caused by the Covid-19 pandemic. The war in Ukraine, with both Ukraine and Russia important suppliers of commodities like wheat and food oils, as well as energy and fertiliser, has made the situation worse. 

“Our sector is, in particular, impacted by the significant rises in energy costs seen this year – with over 60% of food and drink manufacturers reporting energy price rises are impacting their operations. Meanwhile, wages are rising too with labour shortages right across our sector taking hold.”

“Inflationary pressures continue to impact businesses as well as households, with soaring energy prices further driving up the Consumer Price Index. These higher energy prices, along with a tight labour market, and the huge costs of moving goods around, are impacting all retailers. Food production has been particularly hard hit, with historically high global food prices, rising costs of animal feed, and disruption in supplies as a result of the Ukraine war.

Helen Dickinson, chief executive of the British Retail Consortium (BRC), added, “The Bank of England now expects inflation to top 10% by the end of the year, as many of the rising costs filter down into prices. Retailers are doing their bit to protect consumers by expanding their value ranges and doing all they can to keep the price of essentials down. 

“This can be seen in the BRC’s Shop Price Index, which tracks the price of basic goods, which showed a slower rise in the price of essential foods and other products than the inflation levels seen in the broader CPI measure.”

A government response is needed
Commenting on the latest figures, Chancellor Rishi Sunak said the government “cannot protect people completely” from rising inflation, as it is a global problem, largely impacted by the war in Ukraine. He said he was “providing significant support where we can and stand ready to take further action”.

But Labour is insisting this isn’t enough and has called for a one-off “windfall” tax on energy companies to help ease the pressure on people’s finances.

Many retailers are finding themselves unable to absorb the costs of inflation and they will need to pass down price increases to their customers. With millions of people across the UK now fighting to keep food on the table, the British Independent Retailers Association (Bira) is demanding that the government provides more aid than is currently offered.

Andrew Goodacre, CEO of Bira, commented, “Inflation at these levels, the highest for 40 years, is a new challenge for many independent retailers.

“Whilst there is an understandable focus on the cost of living, we would urge the government not to forget about targeted support for businesses also struggling to deal with the extra costs due to inflationary pressures.

“Retailers are doing all they can to reduce the impact on prices for shoppers which means reduced profit margins for everyone. We would like to see this year’s 100% increase in business rates reversed and some way of helping businesses manage the rising costs of energy.”

Karen added, “It is vital industry and government work hand-in-hand to ensure the cost of doing business is kept as low as possible. For instance, minimising the costs of existing and new regulation, and with a view to responding to shortages in supply in as agile a way as possible.”