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Shoppers may soon have to contend with higher food bills as inflation jumps at its fastest pace for 20 years.
The CPI rate of inflation in the UK rose to 3.2% in the year leading to August as the economy continues to recover. Up from 2% in July, this is the fast increase in the measure of the price of goods and services in 20 years.
Why has inflation risen?
The increase is partly thanks to the Eat Out To Help Out scheme which ran last year in August, and saw big discounting in the restaurant sector. As a result, the increase seems bigger than it actually is.
Sarah Coles, personal finance analyst, Hargreaves Lansdown explains: “Inflation has taken a breath-taking leap, surging at its fastest rate in over 20 years.
“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.”
Staff and lorry drivers’ shortages are also part of the reason there is a rise in inflation, as they acted to stifle higher demand.
Coles adds: “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 economySarah Coles
There are a few significant changes in prices such as:
- Petrol prices (from 113.1 pence per litre to 134.6 pence per litre in August)
- Used car prices (up 18.4% since April this year)
- Food prices
- Retail prices
The Bank of England expects inflation to hit 4% towards the end of 2021 and then drop, as the impact of the first lockdown and supply tailback drop out of the figures and supply and demand in the economy normalises.
Is it beneficial to keep money in a savings account?
Inflation jumping up to 3.2% means it’s more important than ever that you don’t let your savings languish in a bank account paying peanuts in interest. Have you considered investing any money you don’t need in the short term?— Emma Maslin (@MoneyWhisperer_) September 15, 2021
Emma Maslin, financial expert, said in a tweet: “Inflation jumping up to 3.2% means it’s more important than ever that you don’t let your savings languish in a bank account paying peanuts in interest. Have you considered investing any money you don’t need in the short term?”
Research shows that the most common reason mentioned by 42% of people for not switching their savings now is that they think rates are too low to bother with, according to Hargreaves Lansdown.
The FCA has published today a three-year strategy to encourage people to invest supported by an affordable advice market, which should lead to fewer people being scammed.
Dana is a former reporter at Mouthy Money, having previously worked for Times Money Mentor and the BBC.