THE UK’s rate of inflation was higher than expected in June as prices surged on the back of lockdown easing, official data shows.
The Office for National Statistics (ONS) said the Consumer Price Index (CPI), which measures inflation, soared to 2.5% in June from 2.1% in May.
1
This is higher than what economists had expected it to be at 2.2%.
Inflation is a measure of the cost of living. It looks at how much the price of goods has changed over time.
The average increase in prices is usually based on how much things cost today compared to a year ago and is known as the inflation rate.
The government sets an inflation target of 2% to keep the economy growing steadily.
But new figures show it’s higher than this target at 2.5%, and accelerated sharply since the UK government began a phased lifting of coronavirus restrictions from March.
Prices for goods including clothes, food and eating out surged in June on the back of Covid rules easing in the previous months, ONS figures showed.
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we’re earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.
Non-essential shops were allowed to reopen on April 12, while boozers and restaurants could serve punters once more.
Fuel prices have jumped to their highest level since 2018, with the average cost of petrol standing at 129.7 pence per litre.
This is up from 106.5 pence per litre compared to last year – the largest year-on-year rise seen since 10 years ago.
Clothing and footwear prices also soared to their highest level seen since three years ago.
Although the cost of these goods dipped in January and February when the third national lockdown was in place, they have been rising since as retailers roll out new clothing lines now that shops are open.
Jonathan Athow, deputy national statistician for economic statistics, said: “Inflation rose for the fourth consecutive month to its highest rate for almost three years.
“The rise was widespread, for example coming from price increases for food and for second-hand cars where there are reports of increased demand.”
The Bank of England – in charge of keeping inflation around the 2% mark – warned inflation will peak above 3% as Britain bounces back from Covid lockdowns – but thinks that the rise will be temporary.
However, experts are concerned that the bump in inflation rates could also cause interest rates to rise – hindering Britain’s economic recovery.
Online investment service Bestinvest managing director Jason Hollands said it was of “little surprise” that prices are rising, but said Brits’ finances will take a hit.
He said: “Whether inflation is here to stay or gone tomorrow so to speak, remains to be seen.
“But in the near term elevated levels of inflation are going to put a squeeze on many people’s household budgets at the very point they are starting to get out and about more, including returning to places of work.”
Investor Wesleyan Group investment director Martin Lawrence said it comes as no surprise the BoE is predicting inflation to rise even further.
He said: “The Bank’s forecast takes into account the scrapping of temporary VAT cuts, the stamp duty freeze and other measures which were used to prop up our pandemic-battered economy.”
A single-mum explains how she saved £8,500 in six months by ditching Tesco, cutting bills and buying Poundland make-up.
Here’s 20 money saving hacks that could make you hundreds of pounds richer.
For more guides, we’ve rounded up eight Martin Lewis money-saving tips that could save you £9,243.
Lorraine says Boris Johnson’s gov has ‘got to have the balls’ to bring back lockdown rules if cases rise
