The UK consumer prices index surged by 3.2 per cent in the 12 months to August as revealed by official data last week, the largest ever month-on-month increase since records began in January 1997. The Office for National Statistics, which published the data, noted that the surge was “likely to be a temporary change” and said the UK government’s “Eat Out to Help Out” program last year may have accentuated the jump.
A statement by the ONS said, “In August 2020, many prices in restaurants and cafes were discounted because of the government’s Eat out to Help Out (EOHO) scheme, which offered customers half-price food and drink to eat or drink in. Because EOHO was a short-term scheme, the upward shift in the August 2021 12-month inflation rate is likely to be temporary.”
The reading is yet again above the Bank of England’s target of two per cent and will no doubt add weight to those calling for an end to unprecedented pandemic-era stimulus policies. Chief UK economist at Pantheon Macroeconomics, Samuel Tombs highlighted that used car prices were to blame for the upside surprise.
He said in a research note, “The larger-than-normal month-to-month increase in the core CPI in August also was mainly due to a huge 4.9 per cent rise in used car prices, which pushed up that component’s inflation rate to an eye-catching 18.3 per cent.”
With CPI based on the annual change in the price of basket of goods and services, much of the recent increase reflects a sharp snap back from a record slump last year. Supply chain disruption is at its worst since the 1970s and companies are reporting a record number of job vacancies.