Inflation in the UK had a shock rise to 10.4 per cent in February - defying expectations that it would go down again following three months of decline.
The rate is up from the 10.1 per cent that was recorded the previous month in January, the Office for National Statistics (ONS) said. Analysts had expected inflation to drop to 9.8 per cent after it had started to fall back from its 41-year high of 11.1 per cent in October.
The price of food, as well as alcohol and dining out in pubs and restaurants, were the main drivers behind the surprise rise in February. Food and non-alcoholic beverage prices rose by 18.2 per cent - the highest rate in 45 years.
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The ONS said some salad and vegetable items had gone up in particular following shortages and rationing. The annual inflation rate for restaurants and hotels was 12.1 per cent in February 2023, up from 10.8 per cent in January, reports the Mirror.
Meanwhile, prices of clothing and footwear rose by 8 per cent. ONS Chief Economist Grant Fitzner said: "Inflation ticked up in February mainly driven by rising alcohol prices in pubs and restaurants following discounting in January.
"Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing. These were partially offset by falls in the cost of motor fuel, where the annual inflation rate has eased for seven consecutive months."
The Consumer Price Index (CPI) measure of inflation tracks how prices have changed over 12 months. When inflation is higher, you're paying more for something compared to one year ago.
For example, if something cost £1 last year and the rate of inflation is 2 per cent, it would now cost £1.02 today. This is particularly bad when inflation outstrips wage growth, as you need to use a higher percentage of your money to buy everyday essentials.
Will inflation fall?
Inflation peaked at a 41-year high of 11.1 per cent in October 2022. Economists at the Office for Budget Responsibility (OBR) said last week they expect inflation to fall back to 2.9 per cent by the end of the year.
It comes off the back of wholesale energy prices dropping in recent months. At the same time, the UK is now predicted to avoid a recession, defined as two consecutive quarters of decline.
As a whole, the economy is forecast to shrink by 0.2 per cent this year, before growing by 1.8 per cent in 2024 and 2.5 per cent in the following year. Original predictions suggested the UK would enter recession in 2022 and shrink by 1.4 per cent in 2023.
Why is high inflation bad?
When inflation is high, it means prices are rising fast - so you're not able to buy as much for your money as you were before. This is especially bad when inflation outstrips wage growth, as you need to use a higher percentage of your money to buy everyday essentials.
Higher inflation has also led to the Bank of England putting up its base rate ten times in a row since December 2021. The base rate is currently at 4 per cent.
By raising interest rates, the theory is that people spend less, demand goes down and then this should mean inflation drops. But the downside is, borrowing becomes more expensive.
For homeowners, millions of mortgage deals and borrowing rates have become more expensive, compared to when the base rate was at 0.1 per cent in December 2021.
What caused inflation to hit double-digits?
Energy prices rocketed following the Russian invasion of Ukraine in February 2022. Demand for energy was also already high after Covid restrictions ended.
The jump in wholesale energy costs saw the typical household gas and electricity bill shoot up to £1,971 in April last year. Bills were then due to rise to £3,549 in October and £4,279 in January but the Energy Price Guarantee was brought in instead.
The Energy Price Guarantee has “frozen” energy bills for the average family at £2,500 - although this isn't a total cap on your bills. You can still pay more or less than this, as what is actually capped is the unit rates for gas and electricity used.
The Energy Price Guarantee will stay at £2,500 a year until July after a £500 rise from April was postponed by Chancellor Jeremy Hunt. Analysts at Cornwall Insight say a typical bill will drop to £2,013 in July, then £2,002 in October.
Investec economists are slightly more optimistic and say the price cap will fall to £1,981 a year in July, then £1,966 in October. Another contributor behind rising inflation is the price of food, which has also jumped dramatically this year.
Last month, the ONS said food inflation was at 16.7 per cent. The war in Ukraine has had a knock-on effect on what we pay in the supermarkets here in the UK, as this has pushed up the cost of animal feed, fertiliser and oil.
Retailers are also being hit by higher energy costs and rising wages, with this being passed down to customers.
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