Inflation rate hits 40 year high of 9.4%

The rate of inflation rose by 9.4% in the 12 months to June 2022, up from 9.1% in May as price rises were hit by rising fuel and food prices

The high 12-month rate in June 2022 in the transportation sector was primarily brought on by a 42.3% increase in the cost of petrol and diesel during the previous year. In June 2022, the average price of gasoline increased by 18.1% per liter, the highest monthly increase ever. Since February 1982, this inflation rate is the highest.

What are the biggest factors of high inflation?

Rising prices for fuel and food made the largest upward contributions to the change in the consumer prices index (CPI) 12-month increase between May and June 2022. The CPI monthly rate was 0.8%, compared with 0.5% in June 2021.

Food and non-alcoholic beverage prices have risen by 9.8% in the year to June 2022, up from 8.7% in May, and the highest rate since March 2009.

The annual increase for transport was 15.2% in June 2022. Over the past two years, the annual rate has risen from minus 1.5% in June 2020 (during the first coronavirus lockdown) to the latest figure for June 2022.

Lisa Hooker, industry leader for consumer markets at PwC, said: ‘While energy prices – both household utilities and petrol – continued to be the biggest contributors to the increase in inflation in June, food, hospitality and leisure were the only other areas to see big increases compared with May, with almost all other categories unchanged or slightly declining.

‘With input price pressure due to commodity price increases and labour shortages, it’s no surprise that supermarkets have had to start to pass on price increases to shoppers. We’ve already seen more shoppers trading down to own label, and manufacturers adjusting pack sizes – so called ‘shrinkflation’ – to try and help customers manage increasing grocery bills.

‘Looking ahead, there is no sign that the grocery price increases will abate for the rest of the year. Combined with the anticipated energy price cap increase in autumn and falling consumer confidence more generally, there’s likely to be a squeeze in discretionary spending. It’s already started as we can see from retailer profit warnings.’

The rising inflation rate is also likely to lead to an increase in the Bank of England base rate, with indications the Bank may move to hike rates by 0.5% in the next rate review.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown said: ‘With inflation running at 9.4% there is no escaping the heat in the economy and it’s going to make policymakers at the Bank of England sweat. They face the supremely tricky task of rapidly cooling down prices, without pushing growth into the deep freeze.

‘The economy sorely needs to be doused by a bucket of ultra cold water, but the labour market is still red hot and promises of tax cuts by prime ministerial contenders risk seeing prices staying elevated as demand for goods and services is kept higher.’