Liam Halligan: Inflation is back, so what can we do?
Petrol prices average 134.6 pence per litre in August – their highest since September 2013.
Last Monday, in our very first episode of 'On the Money', we posed the questions “Is inflation back?”. Well, now it seems we have our answer.
Figures out this morning show the Consumer Price Index measure of inflation – the CPI – rose to 3.2 percent in August, the highest inflation rate we’ve seen since March 2012, and the sharpest month on month acceleration in inflation since the late 1990s.
Now, inflation doves – those who think these price rises won’t persist, say much of this August inflation was because rising restaurant and cafe prices last month are being compared to the same month in 2020, in the midst of discounts offered under the government’s “Eat Out to Help Out” scheme. And there is something in that argument.
On the other hand, the cost of living is clearly rising. Food prices rose 1.1pc in August alone – the highest monthly increase in food prices since 2008.
Higher transport costs are also driving inflation. Petrol prices average 134.6 pence per litre in August – their highest since September 2013.
The danger with inflation – as we often say here on 'On The Money' – is that once it gets going, with companies paying more for their inputs, the things THEY need to make and provide the goods and services they sell to us, those firms then start jacking up consumer prices - the prices we face - in anticipation, so they don’t lose out.
And once inflation gets into the supply-chain in that way, rises in the cost of living for all of us then become a self-fulfilling prophecy. And, if wages don’t keep up, it's workers and households that lose out. Plus, inflation often spooks firms and their shareholders, making them reluctant to invest, so growth and jobs also suffer.
An upward consumer price spiral, driven by rising inflation expectations is now, I would judge, a clear and present danger.
And that’s what we’re discussing, your On The Money Question today – Inflation is back – So what can we do?