Energy prices spark record global inflation

Further evidence of the global scourge of soaring inflation was illustrated on Wednesday when official figures showed the UK's Consumer Price Index had hit a 30-year high in the 12 months to March

calculator and shopping basket with couple in background
The seven per cent figure revealed by the Office for National Statistics (ONS) came less than 24 hours after the US Department of Labor said annual price rises in America were now running at 8.5% - the highest rate since 1981.

And earlier this month, the European Union statistics agency, Eurostat, put the inflation rate for the 19 countries using the euro at 7.5%, another 40-year high.

Rise in inflation create concerns globally

The two main reasons for the CPI increases were very much the same in every nation: supply chain problems resulting in global increases in commodity prices,  and surging energy costs, compounded by the Russian invasion of Ukraine.

UK Chancellor of the Exchequer Rishi Sunak warned that the situation in Ukraine could lead to yet further inflationary pressures in the coming months.

“We’re seeing rising costs caused by global pressures in our supply chains and energy markets, which could be exacerbated further by Russian aggression in Ukraine," he said.

“I know this is a worrying time for many families, which is why we are taking action to ease the burdens by providing support worth around £22 billion in this financial year, including for the most vulnerable through our Household Support fund. We’re also helping as many people as possible into work - the best way for families to gain economic security in the longer term.”

Alpesh Paleja, lead economist at the Confederation of British Industry (CBI), agreed that the latest rise in inflation would not be the last and that the situation illustrated the need for further action on the production of green energy.

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He said further inflationary pressures would only lead to even higher costs for businesses and a deeper squeeze in the cost of living for households.

“The energy-centric nature of inflationary pressures highlights the need to double-down on investment in green energy," Mr Paleja added.

"Making homes and commercial buildings more energy efficient would help reduce demand and consumer bills. In the near-term, reducing policy costs for energy intensive industries and continuing support for low-income households will be essential in helping those worst hit.”

Suren Thiru, head of economics at the British Chambers of Commerce, said the largest contributors to the latest inflation rise were the increasing costs of housing and household services, including higher utility bills, rising fuel prices and more costly second-hand cars.

Cost of living on the rise

“March’s increase should be followed by a significant uptick in April, with the increase in the energy price cap and the reversal of the VAT reduction for hospitality in the month likely to push inflation above eight per cent," he said.

“The upward pressure on energy and commodity prices from Russia’s invasion of Ukraine will drive consumer prices higher for longer with inflation likely peak close to ten per cent later this year, following the expected energy price cap rise in October."

Mr Thiru warned that soaring inflation had raised the prospect of a notable slump in economic output in the near term by weakening consumer spending and damaging firms' finances and their ability to invest and grow.

“The government must provide urgent financial support, through the expansion of the energy bills rebate scheme, to include small firms and energy intensive businesses, and an SME energy price cap to protect smaller firms from some of the price increases,” he added.

Read more news and views from David Sapsted in the Spring 2022 issue of Think Global People.

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