In the twelve months ending November 2011, the cost of living rose by 5.1%, an increase from 4.2% in September 2011 and the highest since September 2011.
The rise was driven by rising transport and energy prices, according to the Office for National Statistics.
Grant Fitzner (ONS chief economist) said that fuel, energy and clothing are all important factors.
He also said that the price of raw materials has increased significantly.
“A broad range of price hikes led to another sharp rise in inflation which is now at its highest point for over a decade,” said he.
The figures showed that petrol prices have jumped to an all-time high of 145.8p/litre. Meanwhile, the price of used cars has risen because of a lack of new vehicles. Supply chain issues are continuing to affect the economy.
Due to the global shortage in computer chips for new vehicles, there is a shortage in cars. This has resulted in a decrease in demand on the second-hand car market.
Before Wednesday’s figures, food and drinks industry officials warned of the “terrifying effect” that rising prices for raw materials and other ingredients were having on consumer price.
Inflation will rise by twice as much than the Bank of England’s target rate of 2%. This will increase debate about whether or not interest rates should go up.
Tuesday’s prediction by the International Monetary Fund that inflation would rise to around 5.5% within the next year was a warning to the Bank against “inaction bias”.
In the face of uncertainty over the Omicron-related impact on the economy and the financial health of people, the Bank has not allowed a rate increase.
Pantheon Macroeconomics economist Samuel Tombs said that inflation has reached an “uncomfortably high level” at the Bank. However, he believes that rate-setters will continue to hold their fire this week.
According to him, the rapid ascent of inflation in the past four months will “probably not panic” Bank policymakers. They should raise interest rates this week “given the extent of Omicron’s economic damage still being assessed”.
Yael Selfin (economist at KPMG) also believed that the Bank would adopt a “wait-and-see” approach to this week’s meeting.
How does inflation work?
Inflation is the rate at which prices are rising – if the cost of a £1 jar of jam rises by 5p, then jam inflation is 5%.
This applies even to services, such as getting your nails done and your car washed.
Although you might not see any inflation in your area from month to month, long term price rises could have an impact on the amount of money that you can purchase – often referred to simply as the cost to live.
- What is driving the rising cost of living?
Inflation is significantly higher than the latest figures for average wage rises of 4.3%. This means that living standards are actually falling.
Wednesday’s statement by Rishi Sunak, the Chancellor, stated that he was aware of the effects being felt in consumers.
“We know how challenging rising inflation can be for families and households which is why we’re spending £4.2bn to support living standards and provide targeted measures for the most vulnerable over the winter months,” Mr Sunak said.
Pat McFadden Shadow Chief Secretary to the Treasury stated that these figures are “a stark illustration the cost of living crisis faced families this Christmas… As inflation rises, the list of price pressures continues.
The retail price inflation measure (RPI), which the ONS claims is inaccurate, was up 7.1% to 6% from March 1991.
Inflation is not a problem that only affects the UK. In the United States, latest data shows that prices have increased by 6.8% over the past year. It is now the highest point in nearly 40 years.
The prices are increasing at an accelerated rate over the past decade. It is actually 13 years for those who use the ONS favourite measure, which also includes the costs of homeownership.
According to the Bank of England, inflation has increased faster than anticipated by others than it did. The Bank expects that the rate will rise to 5.5% this spring. And, for the next two year, it will be well above its 2% target.
This is all a reflection of our daily experience in supermarkets, petrol stations and department shops. It is evident that this has a significant impact on living standard, with real incomes likely to drop again.
An economic uncertainly surrounding rapid spreading of Omicron coronavirus means that an increase in interest rates on Thursday is not a sure thing.
Bank of England and Treasury are concerned about what happens in unions and companies, and how they set wages.
With the ongoing labor shortage, companies are being pressured to offer significant wage increases in the New Year.
Boris Johnson, the Prime Minister of Boris Johnson said that he welcomed such a move. But fear of spiralling wages and rising prices would cause the Bank of England to increase rates faster than they currently expect over the next one year.
Consumers and businesses face a challenging outlook in early 2022, given the fact that there’s little to no relief from rising energy prices and tax increases, as well as ongoing Omicron restrictions.
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