Inflation soars to highest since 2012 after Eat Out to Help Out impact

The prices of used cars are rising due to the impact of the pandemic and the biggest driver of inflation was prices at restaurants and hotels, ITV News Business Editor Joel Hills reports

UK inflation has surged to its highest for nearly a decade after a record jump in August as restaurant and cafe prices raced higher following last summer’s discounts under the Eat Out to Help Out scheme.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation jumped from 2% in July to 3.2% in August, which is the highest since March 2012 and far above the Bank of England’s 2% target.

The ONS said the increase – the largest since records began in 1997 – was due to the discounts seen across the hospitality sector last August under Chancellor Rishi Sunak’s Eat Out to Help Out scheme to boost consumer spending and confidence after lockdown.

It added there was also likely to have been some impact from the supply chain crisis on inflation last month, which it said helped push up food and non-alcoholic drinks prices.

ITV News Economics Editor describes the rise as a "blip."

The ONS said August’s hefty rise is set to be temporary, but experts have forecast inflation will hit 4% by the end of this year as the economy bounces back from the pandemic.

Jonathan Athow, deputy national statistician at the ONS, said: “August saw the largest rise in annual inflation month on month since the series was introduced almost a quarter of a century ago.

“However, much of this is likely to be temporary as last year restaurant and cafe prices fell substantially due to the Eat Out to Help Out scheme, while this year prices rose.

“Food and non-alcoholic drink prices rose by more than last year, which also helped push up the rate.”

In a further sign of the pressure from the supply chain woes, the ONS said manufacturers are seeing huge cost rises of raw materials, with both input and output – or factory gate – prices rising at the fastest rate for a decade.

There are fears these will be passed on to consumers in time, although the ONS said it is unclear how long it will take to filter through to wider inflation.

The ONS figures showed that Eat Out to Help Out from a year ago, as well as the temporary VAT cut, had the biggest impact on August CPI, with restaurant and hotel inflation soaring by a record-breaking 8.6%.

Mr Sunak launched the scheme last year to help the embattled hospitality sector recover as the economy reopened after lockdown, offering diners up to 50% or £10 each off at pubs, cafes and restaurants.

But the ONS said the impact should reverse next month, given that the scheme only ran for one month in 2020.

The ONS data also showed that food and non-alcoholic drink prices surged 1.1% month on month, or 0.3% over the year.

Global supply chain issues, combined with a lorry driver shortage in the UK, has been leading to pressure on availability of raw materials and retail stock, leaving supermarket shelves increasingly bare in recent weeks.

Builders have also been reporting delays and higher prices across materials including cement, steel and bricks.

Fuel prices also continued to drive inflation higher last month, with the cost of petrol seeing the biggest jump since September 2013.

Average petrol prices stood at 134.6 pence per litre in August 2021, compared with 113.1 pence per litre a year earlier, according to the ONS.

The ONS added that the Retail Price Index (RPI), a separate measure of inflation, increased to 4.8% last month.

CPI inflation including owner-occupiers’ housing costs – CPIH, which is the ONS’s preferred measure of inflation – was 3% in August up from 2.1% in July.