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Inflation in Britain Hits 10.1 Percent, Driven Higher by Food Prices
Consumer prices in Britain rose 10.1 percent in September from a year earlier, continuing their steep climb as the nation grapples with rapidly increasing food prices, high energy costs and political uncertainty.
The annual inflation rate returned to its fastest pace since 1982, matching the pace set in July. It rose from 9.9 percent in August. Inflation was expected to peak next month, at a slightly higher rate, but a reversal in the government's policy to hold down household energy bills has made the future path of prices even more uncertain.
Prices were pushed higher by large increases in the cost of food and, to a lesser extent, hotel and restaurant bills, in September. Food prices rose 14.5 percent last month from a year earlier, the largest annual rise in more than 40 years, according to the Office for National Statistics. High energy costs were still contributing to inflation growing at its fastest pace in decades. But price increases are widespread across goods and services, so core inflation, which excludes food and energy prices, rose 6.5 percent from a year earlier, up from 6.3 percent in August.
It's another sign of the stickiness of inflation that politicians and policymakers are facing all over the world. Over the year through September, consumer prices rose by a record 9.9 percent in the eurozone and by 8.2 percent in the United States, near a four-decade high. That is encouraging central bankers to go for steeper increases in interest rates, in an effort to send a firm message that they will get inflation back down and won't let rapid price increases become entrenched in the economy.
But constantly changing fiscal policies, as governments try to support households through increases in the cost of living, are also complicating the picture.
Just under six weeks ago, Prime Minister Liz Truss of Britain pledged to freeze household energy bills, one of the biggest sources of inflation increases, from October for the next two winters. This week, much of Ms. Truss's economic agenda was scrapped by Britain's new finance minister, Jeremy Hunt, as he tried to restore calm in financial markets, which had seemingly stopped believing in the government's fiscal credibility. Ms. Truss apologized to lawmakers on Wednesday for making "mistakes," but the political turmoil continued a few hours later when a senior cabinet minister resigned.
One victim of Mr. Hunt's policy reversal was Ms. Truss's landmark policy on energy bills; now Britons are guaranteed a freeze on their bills only until April. After that, the government said, it would come up with a less expensive and more targeted plan to help people with their bills.
If households had to return to paying a price cap set by market prices through Ofgem, the government's energy regulator, the headline rate of inflation would increase by about five percentage points, economists at Pantheon Macroeconomics wrote in a research note this week. But, they said, it's too soon to forecast what is most likely to happen as the government is still devising a new plan to help with bills beyond April.
The Bank of England has been raising interest rates since December to tackle inflation. At its past two meetings it raised rates by half a percentage point, double its previous moves, amid signs of broadening inflationary pressures, especially in the labor market, where wages are rising and large numbers of people are staying out of the work force.
While the central bank is expected to keep raising interest rates for several more months, analysts question how high rates can go and how long the increases will continue as the British economy slows down. High inflation is squeezing household budgets, and there are growing predictions that the economy will contract next year amid a decline in consumer spending.
The International Monetary Fund predicted that the British economy would go from 3.6 percent growth this year to a 0.3 percent contraction next year "as high inflation reduces purchasing power and tighter monetary policy takes a toll on consumer spending and business investment."
Traders are currently betting the central bank will raise interest rates above 5 percent next year, from 2.25 percent.
[Source: By Eshe Nelson, The New York Times, 19Oct22]
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