High food prices are pushing UK inflation back to a 40-year high

LONDON, Oct 19 (Reuters) – The biggest jump in food prices since 1980 pushed British inflation back into double digits last month, matching a 40-year hit in July in another blow to households struggling with a cost-of-living crisis.

The Office for National Statistics said the consumer price index (CPI) rose by an annual 10.1% in September. A Reuters poll of economists had pointed to a reading of 10.0%, after a 9.9% rise in August.

The pound fell below $1.13 on the news and was last down 0.2% on the day.

The figures hammered home the difficult environment for British households, particularly those on the lowest incomes, who face fresh uncertainty about the extent of financial support available to them following recent government changes.

The Bank of England will also feel under pressure to step up its rate hike campaign next month in light of Wednesday’s data.

Short-dated UK government bond yields, which are sensitive to changes in interest rate expectations, rose sharply in early trade.

Food and non-alcoholic beverage prices were the biggest driver of inflation in September as they rose 14.5%, the biggest jump since April 1980 according to historical modeled estimates of the CPI.

RISING CORE INFLATION

Hotel prices also rose in September, the ONS said.

“Today’s release highlights the danger that underlying inflation remains strong even as the economy weakens,” said Paul Dales, chief UK economist at consultancy Capital Economics.

He pointed to rising core inflation, a measure that excludes volatile food and energy prices, which hit a new 30-year high of 6.5%.

The inflation figure from September is used as a reference point for the “triple lock” indexation of state pensions – but pensioners have not yet heard a clear answer from the government about whether they will rise in line with prices next year.

Government support for household and business energy bills is also in doubt after the new Chancellor of the Exchequer, Jeremy Hunt, limited the scope of the program to six months, from two years earlier.

Many households are facing rising costs as a direct result of financial market fallout from Prime Minister Liz Truss’s economic growth agenda, which Hunt largely reversed on Monday in a bid to restore shattered investor confidence in Britain.

Even without the recent political and financial turmoil, the UK was hit hard by the spike in European natural gas prices caused by Russia’s invasion of Ukraine, which has contributed to post-Covid-19 bottlenecks and labor shortages, putting intense pressure on living standards. .

Reporting by Andy Bruce and Ana Nicolaci da Costa; editing by William James, Kate Holton, Paul Sandle and Alex Richardson

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