Record food price rises keep inflation above 10%

UK inflation remained in double-digits in March after it fell less than expected.

Consumer prices rose by an annual 10.1%, the Office for National Statistics said, down from 10.4% in February. Despite the government’s attempt to push inflation down, soaring food prices means inflation has not pushed inflation down. The price of food and non-alcoholic drinks jumped 19.1% in the month - the largest rise since August 1977.

While March’s figures are less of a shock than the surprise increase in February, it has stoked bets that the Bank of England will raise interest rates again in May.

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We look at what inflation means for you and your money.

What is driving inflation?

The largest contribution to the upped inflation rate came primarily from food and non-alcoholic beverages, alongside housing and household services - including electricity, gas and other fuels.

Experts have pointed out that food inflation is not budging in the same way as other sectors, with a one-month increase of 1.1%. Downward trends were identified in the housing and household services sector as well as restaurants and hotels.

Some of the food essentials that have shot up in prices are: olive oil - up 49.2%, low-fat milk - up 38.8%, cheese up - 33.6%, and eggs - up 32%.

Sarah Coles, head of personal finance, Hargreaves Lansdown said the high inflation figures are a consequence of “the decisions of food producers back when everything from energy to fuel, fertiliser and feed was impossibly expensive, so there are still supply issues.

“More recently we have seen the impact of shoppers cutting back, which is worth watching for. In this case, it’s the runaway price of milk which has encouraged people to take milk and dairy products off their shopping lists.

“As a result, there was a glut in the wholesale market, the supermarkets have been able to pick up some bargains, and we have seen the giants slash milk prices in recent days,” she said.

Today’s latest figures indicate inflation is more stubborn than that of other countries - the UK now has the highest inflation rate in western Europe, and it means we could see yet another rise in interest rates next month.

What’s next for inflation?

Last week, the International Monetary Fund forecast that inflation would average 6.8% in the UK this year - the highest of any major advanced economy.

"It's now clear the UK has an inflation problem that is worse and more persistent than in Europe and the U.S.," said Ed Monk, associate director of personal investing at asset manager Fidelity International.

One particular factor to remember is the inclusion of anomalous energy price data. Last year’s sharp energy price rises will soon drop out of the annual comparison, making it likely that inflation will drop naturally. The task of the Bank of England is to monitor and control how fast that fall will be.

Some metrics already point to this scenario - inflation on costs charged by manufacturers fell in March to 8.7%, down from 11.9% in February - its lowest since October 2021.

What does rising inflation mean for your money?

Inflation at 10.1% will continue to pose a challenge for mortgage holders, savers and pensioners alike, all while the wider property market faces a continued affordability crisis, but there are a few avenues of positivity.

While softening inflation is good news for savers as it means the value of their savings will improve, in real returns on cash savings will still be deeply negative.

“Thankfully, with savings rates edging up dramatically over the past year and inflation expected to slide by the fourth quarter, savers can start imagining a future where they actually make a gain in real terms,” she said.

She added now is the time to move money languishing in ultra-low interest rate accounts.

“Opting for a long-term fix may also be a wise move for those that want to ensure their money works as hard as possible if interest rates do edge down in the future. Remember, while a high-interest, easy-access savings account can be a great place to hold an emergency fund, it might not be the best storage facility for those with surplus money,” she said.

Sarah Coles, head of personal finance at Hargreaves Lansdown, echoes this view. She said if beating inflation is the primary consideration, “predictions that it could fall below 3% at the end of the year make a 1-year fixed rate at 4.5% and a 5-year fixed rate at 4.6% look like attractive prospects.”

State pensioners too should take heed of the ONS’ findings, said James Jones-Tinsley, chartered financial planner and SIPP technical specialist at Barnett Waddingham.

Those who claim the state pension will be “holding onto their sighs of relief, as inflation is yet to hit single digits,” he said, with figures expected in six months likely to be key to long-term policy surrounding the pensions triple lock.

Jones Tinsley said: “September’s inflation figure should, under the current policy, dictate the state pension for the 2024 tax year. Pensioners should be hoping for a return to a more feasible rate of inflation by then, to enable the Government to uphold the triple lock and secure a comfortable state pension increase next April.

“If inflation is still notably high, upholding the lock would look financially untenable. Of course, this is in the Government’s political best interest too; unless their hand is forced by the economic reality, they won’t want to make any changes until after a general election,” he added.