Vegetable shortage and increased price of alcohol fuel surprise inflation rise

Wed 22 Mar 2023
Posted by: Phillip Adnett
Trade News

UK inflation going upwards

The highest rise in food prices for 45 years fuelled an unexpected increase in the rate of inflation in February, according to new government statistics.

Office for National Statistics (ONS) data calculated the Consumer Prices Index (CPI) at 10.4% over the last 12 months to February, up from an annual rate of 10.1% the previous month.

This dashed expectations that inflation would retreat further from October’s 41-year high of 11.1% reports Sky News.

Expectations dented

Most economists polled by Reuters had expected a slight decrease in inflation to 9.9%.

According to the ONS, the increase in February was mainly driven by rising alcohol prices in pubs and restaurants following discounting in January, as well as the effects of shortages of some salad and vegetable items as a result of high energy costs and bad weather across Europe.

Restaurants and hotels in particular faced an inflation rate of 12.1% – the highest rate of inflation since July 1991 – as a result of the rising cost of alcoholic beverages.

Food prices

Food and non-alcoholic drinks prices rose by 18% year-on-year last month, up from 16.7% in January, reports ITV.

Chancellor Jeremy Hunt underlined the importance of tackling inflation during last week’s budget, forecasting it would be 2.9% by the end of 2023.

The most inflation data will concentrate minds at the Bank of England (BoE), which make its next interest rate decision on Thursday.

Bank rate increase?

Financial markets now believe that the BoE will raise the rate by 0.25% hike to 4.25% following February’s rise of 0.5% to slow the pace of increase.

The Guardian notes that the expectation was that Threadneedle Street could be tempted into dropping rates if the rate of inflation had fallen.

Euro-inflation

Rising food prices have also pushed up inflation in the last month in EU nations like France, Spain and Germany, but at much lower levels than in the UK.

The increase in UK inflation contrasted with a fall in the US rate to 6% in the 12 months to February. Euro zone inflation also eased last month to 8.5%.

Alpesh Paleja, the Confederation of British Industry’s (CBI) lead economist, said that “while inflation rose in February, the outlook for the months ahead is looking more benign”.

However, he warned that “despite further falls over the coming months, this year will still be a high-inflation environment for both households and businesses”.