Inflation sees largest rise on record after food and eating out costs surge

UK inflation has surged to a near-decade high after rising at the fastest pace on record pace last month as the cost of food and eating out soared.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation jumped from 2% in July to 3.2% in August – the highest since March 2012.

The ONS said the increase – the largest since records began in 1997 – was largely due to discounts across the hospitality sector last August under Chancellor Rishi Sunak’s Eat Out to Help Out scheme to boost consumer spending after lockdown.

The ONS said August’s rise is set to be temporary, but experts have forecast inflation will hit 4% – or higher – by the end of this year as the economy bounces back from the pandemic.

The official data showed inflation surging across many areas of the economy, with used car and fuel prices rising while food costs have also spiked amid the supply chain crisis.

Jonathan Athow, deputy national statistician at the ONS, said: “August saw the largest rise in annual inflation month on month since the series was introduced almost a quarter of a century ago.

“However, much of this is likely to be temporary as last year restaurant and cafe prices fell substantially due to the Eat Out to Help Out scheme, while this year prices rose.”

In a further sign of pressure from global supply chain woes and the UK’s lorry driver shortage, the ONS said manufacturers are seeing huge cost rises for raw materials, with input and output – or factory gate – prices rising at the fastest rates for a decade.

There are fears these will be passed on to consumers in time, although the ONS said it was unclear how long it will take to filter through to wider inflation.

The bigger-than-expected leap in inflation heaps further pressure on the Bank of England ahead of its interest rates meeting next week, with CPI sailing past its 2% target.

The Bank has so far insisted big leaps in inflation will be only temporary, but fears are mounting that price pressures may be more sustained than it expects.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said last month’s rise in inflation was “breathtaking”.

She said: “It was given a significant shove by the Eat Out to Help Out scheme discounts a year earlier, which will drop out of the figures next month.

“However, much of this enormous jump is powered by the same alarming imbalance between supply and demand that has seen yawning gaps open up on the supermarket shelves.

“It spells trouble for shoppers, savers and the broader economy.”

The ONS figures showed that Eat Out to Help Out from a year ago, as well as the temporary VAT cut, had the biggest impact on August CPI, with catering services inflation soaring by 7.9%.

The data also showed that food and non-alcoholic drink prices surged 1.1% month on month, or 0.3% over the year.

Fuel prices were another factor driving inflation higher last month, with petrol seeing the biggest jump since September 2013, while used car prices leapt 4.9% and have now risen by 18.4% since April.

The ONS added that the Retail Price Index (RPI), a separate measure of inflation, increased to 4.8% last month.

CPIH inflation including owner-occupiers’ housing costs – the ONS’s preferred measure of inflation – was 3% in August, up from 2.1% in July.