Cost of living to hit 3-year high

The cost of living is to hit a three year high. Picture stock image
The cost of living is to hit a three year high. Picture stock image
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A jump in food and fuel prices is expected to push the cost of living to its highest level since June 2014 when official figures are released on Tuesday.

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The Consumer Price Index (CPI) is forecast to reach 1.9% in January, as inflation continues to build after rising to 1.6% in December and 1.2% in November.

Data released by the RAC at the beginning of this month showed fuel prices reached a two-year high last month, with petrol and diesel increasing by an average of 2p a litre at the pumps.

Ballooning import prices triggered by the Brexit-hit pound are also expected to bump up prices as companies pass on their soaring costs to consumers.

Howard Archer, chief UK and European economist at IHS Global Insight, has pencilled in inflation of 1.9% for January but said some prices rises could be offset by a discounting drive from retailers.

He said: “The upside for UK inflation in January may have been limited by a number of retailers engaging in aggressive discounting in the January sales after disappointing sales at the end of the year.”

Investec predicts inflation will notch up to 1.8% in January, with an upward pressure coming from air fares.

Economist Victoria Clarke said the shortage of vegetables after extreme weather ravaged crops across Europe might have also pushed up prices at the supermarket checkout.

Restaurants and shops have been accused of sparking a lettuce ration in supermarkets by bulk-buying the salad favourite amid a European vegetable shortage.

Alan Clarke, head of European fixed income strategy at Scotiabank, said the drought and snow storms that hammered the Mediterranean vegetable harvest could also increase processed food prices, including veggie burgers.

He said other vegetables such as broccoli, tomatoes, salad peppers and aubergines could also be hit by shortages in the coming weeks.

Rising food prices was one of the biggest contributors to CPI in December, with a jump in vegetable costs pushing food up by 0.8% between November and December, having been flat a year earlier.

The 12-month rate for food prices was still negative, down 1%, but that marked its highest level since July 2014.

The ONS said sterling weakness was a factor in rising food prices but not the sole contributor.

The Bank of England is forecasting inflation to lift to 2% this month, peaking at 2.8% in the first half of next year, before falling back to 2.4% in three years’ time.

Kristin Forbes, one of the nine rate-setters on the Bank’s Monetary Policy Committee (MPC), signalled on Tuesday that she was inching closer to voting for a rate rise after becoming increasingly “uncomfortable” with surging inflation given the economy’s resilience since the Brexit vote.

Ms Forbes, who is due to leave the Bank at the end of June, said growth had defied gloomy forecasts ahead of the EU referendum last June thanks to a “series of fortunate events” in the second half of 2016, which were set to keep supporting the economy.

Strong consumer spending helped power growth in the final months of last year, with GDP expanding by 0.6% in the fourth quarter, in line with the second and third quarters.

The MPC voted unanimously to keep rates on hold at 0.25% this month.