UK inflation soars to 3.2% – how it affects your money
INFLATION hit its highest level in nearly a decade yesterday as fuel and food prices soared owing to supply-chain issues.
Consumer Prices Index inflation rose from two per cent in July to 3.2 per cent in August, the Office for National Statistics said.
It is the highest it has been since March 2012 and the biggest jump since records began back in 1997.
The increase was blamed on a 4.9 per cent rise in used-car prices as people shunned public transport in the pandemic and rising food prices owing to lorry driver shortages and supply problems.
The UK also experienced the biggest jump in petrol prices in eight years and a huge increase in the cost of energy.
Even the rising prices of computer games as people stayed in during the pandemic had an effect.
The ONS said the August rise was temporary but there were fears it could keep climbing and hit four per cent by the end of the year.
It could lead to even higher food prices with transport fares, based on the retail prices index, set to climb 4.8 per cent in January.
Laura Suter, of AJ Bell, said: “The hurdle for your cash to just keep pace with prices has now ratcheted up.” Sarah Coles, of Hargreaves Lansdown, called the inflation rise “breathtaking”.
She said: “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.”
It puts pressure on the Bank of England ahead of its interest rates meeting next week as CPI is well beyond its two per cent target.
What does it mean for your finances?
The average increase in prices is usually based on how much things cost today compared to a year ago and is known as the inflation rate.
So if the rate of inflation is 2% it means that prices are generally 2% higher than they were this time last year.
The higher the rate of inflation the more prices are rising.
A higher rate of inflation means your money doesn't go as far and you have to spend more. But how much you earn may not increase at the same rate and that could leave you with less in your pocket overall.
It also means that if inflation is higher than the interest you're earning on your savings, you are effectively losing money.
A saver with £1,000 stashed away in an easy-access cash account that pays an interest rate of 0.6% for instance, would make just £6.
But inflation means that £1,000 today would be worth 3% less in a year's time - effectively wiping £30 off your spending power.
READ MORE SUN STORIES
Neil Messenger, director of client and markets, financial planning from abrdn, said: "After a dip in July, the inflation rate has once again returned to month-on-month growth, continuing its upwards march to what is forecast to be a 4% peak by the end of the year.
"While the Bank of England still expects rising rates to be temporary, savers need to be doing what they can now to ensure the value of their cash keeps pace with, or exceeds, inflation."
We pay for your stories!
Do you have a story for The Sun Online Money team?
Email us at [email protected]