Inflation is rising at its fastest rate in nearly 30 years.
Figures released by the Office for National Statistics show the Consumer Prices Index (CPI) rose by 5.4% in the 12 months to December 2021, up from 5.1% in November.
That’s the biggest annual increase since a rise of 7.1% in March 1992.
CPI is one of a group of indexes used by the ONS to measure the rate at which the prices of the goods and services bought by households rises or falls.
It’s like having a very large shopping basket containing examples of all the goods and services typically bought by households , and then looking at how the prices of those items change each month.
What’s contributing to rising prices?
The big contributors to the overall increase in prices came from rises in the cost of food and non-alcoholic beverages, restaurants and hotels, furniture and household goods, and clothing and footwear compared to November.
There’s also the ongoing impact of rising energy bills and the cost of buying and running a car.
Transport
Average petrol prices stood at 145.8 pence per litre in December 2021, compared with 114.1 pence per litre a year earlier.
However, the December 2021 figure is unchanged from November, although it’s still the highest recorded average price.
The price of cars is also contributing.
Second-hand cars used to be getting cheaper, but the ONS says the pandemic has seen increased demand as more people search for alternatives to public transport.
Cumulatively, used car prices have grown 28.0% since January 2021. By comparison they grew 7.3% over the same period in the previous year.
There’s also a potential shortage of new cars, with a global semiconductor shortage affecting their production, meaning more people are looking for used cars, while fewer cars sold or traded in for new ones means less coming onto the second-hand market.
Housing, water, electricity, gas and other fuels
The result of price rises for gas and electricity following the increase in the cap on energy prices, which changed on October 1, 2021.
The Office of Gas and Electricity Markets (Ofgem) introduced energy price caps to limit the price energy suppliers can charge the estimated 15 million households that either use a prepayment meter or are on the “standard variable” energy (or default) tariff. It’s updated twice a year, in April and October.
More people have been pushed onto default tariffs in recent months, as cheap switches disappeared, and the high costs to energy suppliers caused a number to go bankrupt.
In April 2020, the energy price cap had been reduced causing a downward contribution from electricity, gas and other fuels.
This fall was reversed in April 2021, before the price cap increased by 12% in October, because of “a rise of over 50% in energy costs over the last six months with gas prices hitting a record high as the world emerges from lockdown”.
The energy cap looks set to increase again in April, further pushing up prices, with the Joseph Rowntree Foundation warning the cost of living squeeze will see families spending an increased proportion of their income of gas and electricity bills.
Food and non-alcoholic beverages
December saw prices for food and non-alcoholic drinks rising at their fastest monthly rate since January 2012 - up 1.3% in a month.
Among the types of items seeing a big increase in prices were margarine and other vegetable fats, pasta and couscous, and lamb.
Compared to December 2020, the cost of margarine and other vegetable fats have risen by more than a quarter, with big rises for oils and other fats, sauces and condiments, and crisps.
Other contributors
The cost of furniture, household equipment and maintenance rose by 2% in December, compared to November.
This was the continuation of a trend that has seen prices rise by 7.3% in the year to December 2021 - the biggest annual increase since records began in 1989.
For clothing and footwear, the monthly rise was small, but still bigger than the increase in December 2020, while for restaurants and hotels, prices fell just not as fast as the December before.
