Record jump in inflation to 3.2% puts squeeze on household budgets: reaction

Inflation has leapt to its highest level for more than nine years after a record jump last month, heaping fresh pressure on household budgets and businesses and stoking fears of higher interest rates.

The Office for National Statistics (ONS) said the consumer prices index (CPI) measure of inflation jumped from an annual rate of 2 per cent in July to 3.2 per cent in August - the highest level since March 2012.

The ONS said the month-on-month increase, which is the largest since records began in 1997, was due to the discounts seen across the hospitality sector last August under Chancellor Rishi Sunak's Eat Out to Help Out scheme to boost consumer spending and confidence following lockdown.

It added there was also likely to have been some impact from the supply chain crisis on inflation last month, which it said helped push up food and non-alcoholic drinks prices.

Households have been facing pressure from increased prices on many goods, while energy costs and petrol prices have also been on the rise. There are also tax rises round the corner. Picture: Greg Macvean

But the ONS suggested that August's sharp rise is set to be temporary.

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.

"Food and non-alcoholic drink prices rose by more than last year, which also helped push up the rate."

Laura Suter, head of personal finance at AJ Bell, said: “July’s fall in inflation was a mere blip as August brings us the largest leap in inflation we’ve ever seen.

“The jump in CPI to 3.2 per cent means inflation is the highest in almost a decade, with January 2012 being the last time it was higher.

“A tricky combination of artificially suppressed prices last year due to lockdown, rising fuel prices, the ongoing high demand in the second hand car market and supply issues have all combined to create a steep rise in prices in August.

“The ONS is keen to point out that much of this rise in prices is temporary, particularly the restaurant and cafe sector. However, the Bank of England itself has predicted prices will rise further from here before the end of the year, so we shouldn’t bank on this being a flash in the pan.”

Kate Smith, head of pensions at Edinburgh-based Aegon UK, said: “Today’s figures come one month ahead of the all-important inflation figure for September which will confirm how much the state pension increases by in April.

“Following the one-year suspension of the ‘triple lock’, the state pension will increase by the higher of September’s inflation figure (published October) or 2.5 per cent.

“With CPI rising steeply in August and expected to continue this path to the end of the year, state pensioners could see a substantive increase in payments in April, even with the earnings element of the triple lock stripped out.”

Jack Leslie, senior economist at the Resolution Foundation, added: “While inflation is on course to hit 4 per cent later this year, these effects are largely transitory and there is little policy makers can do to stem this cost of living crunch.”

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