2 minute read
Finance
SURGING INFLATION
puts the squeeze on company finances
Inflation hit a ten-year high in November on the back of soaring energy, transport and raw material costs.
The cost of living measured by the consumer prices index (CPI) surged by 5.1% in the 12 months to November, according to the Office for National Statistics (ONS) – its highest level since September 2011 and up from 4.2% the previous month.
Higher fuel, energy, raw material and clothing costs were largely responsible for the steep rise. Energy bills in particular have spiralled in
recent months due to soaring global wholesale gas prices. Volatility in wholesale markets has led to the demise of several energy suppliers, with further rises in household gas and electricity bills likely to follow in the next 12-18 months.
Increased demand for second-hand cars was also a factor in driving up inflation.
In November, petrol prices jumped to record levels – 145.8p a litre – while the cost of used cars rose due to shortages of new vehicles. Commenting on the inflation statistics, Suren Thiru, head of economics at the BCC, said: “The latest figures confirm that the surge in inflation continued unabated in November.
“The increase largely reflected higher fuel prices and strong base effects which pushed up clothing and footwear prices in comparison with November 2020.
Stronger growth in producer prices points to an acceleration of cost pressures in supply chains, indicating that inflation will drift higher over the coming months. “It is concerning that inflation is outpacing wages and if this disparity continues to increase as we predict, real household incomes will be squeezed further, dampening consumer spending and weakening overall economic activity. “Inflationary pressures are expected to intensify in the near term as the rising cost of imported raw materials, higher energy prices and the reversal of the VAT reduction for hospitality and tourism drives inflation materially higher by the middle of 2022. “Omicron could accelerate the current surge in inflation if restrictions in the UK and overseas to combat the new variant trigger more supply chain disruption. “While interest rates will rise sooner rather than later, with the current inflationary spike mostly driven by global supply constraints and price pressures, higher rates will do little to curb further price rises. “Greater support is immediately needed for those businesses impacted by Plan B, including making additional grant funding available and reverting the VAT for hospitality and tourism back to its emergency rate of 5%.”
