Food and drink prices give lockdown Britain taste of rising inflation

Shopping during covid

Inflation rose by more than expected last month despite Britain being under its third nationwide lockdown.

Prices rose by 0.7 per cent in January, according to the Office for National Statistics, up from 0.6 per cent in December and above economists’ forecasts of 0.6 per cent.

The increase was driven by furniture and household goods, food, transport and restaurants and hotels. Food and drink prices rose by 0.6 per cent between December and January, compared with a 0.2 per cent fall over the same period a year earlier. Furniture and household goods fell by 1.5 per cent, but had an upward effect on inflation because it was smaller than the 3.3 per cent fall in the same period a year ago.

Although large parts of the hospitality sector are ounder lockdown, the ONS found that restaurants and hotels had made the second largest upward contribution to inflation. Prices rose by 0.9 per cent between December and January, compared with a fall of 0.1 per cent between the same two months last year. The growth was driven by hotels rather than by restaurants and cafés.

The rise in inflation was tempered by falling prices for clothing and footwear, as retailers continued to cut prices in the January sales. Prices fell by 4.6 per cent between December and January.

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “Inflation rose slightly in January, with food prices increasing. Household goods also pushed up prices, with less discounting this year on items such as bedding and settees. However, there were widespread January sales, with particular price cuts for clothing and footwear.”

The figures provide an early indication that inflation is gathering place after falling to -0.3 per cent in August. Economists expect the index to hit 2.5 per cent by the end of the year as consumer demand recovers and the government’s support schemes, such as the VAT cut for the hospitality sector, are withdrawn.

Paul Dales, at Capital Economics, the consultancy, said: “The rise in CPI inflation from 0.6 per cent in December to 0.7 per cent in January is trivial, given that a leap to around 2 per cent in April and to around 2.5 per cent by the end of the year appears to be baked in the cake. That would knock on the head any lingering hopes of more stimulus from the Bank of England, although we doubt it will prompt tighter monetary policy, either.”

In its latest Monetary Policy Report, the Bank of England said that inflation would rise rapidly over the coming months towards the 2 per cent target. “The previous falls in energy prices and the impact of the cut to VAT for certain services which accounted for much of the fall in inflation over 2020 will continue to weigh on CPI inflation in quarter one. As those effects drop out of the annual calculation over the rest of 2021 and recent rises in energy prices feed through to petrol and utility prices, inflation is projected to rise sharply towards the target,” the Bank said.