Roses are... more expensive – as CPI hits 1.8%
UK consumer price inflation is creeping towards the Bank of England’s 2% target, as the fall in sterling continues to make its way through to the high street. Prices rose 1.8% in the 12 months to January, the highest rate since June 2014. The acceleration in inflation was largely down to higher prices for motor fuels, which rose 3.4% between December 2016 and January 2017.
Ben Brettell, senior economist, Hargreaves Lansdown, comments: “Sterling has fallen around 12% on a trade-weighted basis since last June’s referendum, and as a result producers are facing sharply higher input costs – up 20.5% on a year earlier. It’s almost unthinkable that cost increases of this magnitude can be fully absorbed, leaving firms with little choice but to pass at least some of the burden onto consumers. By the end of the year price inflation looks set to outstrip wage growth, which will squeeze household budgets in the short term.
“In its February Inflation Report, the Bank of England’s inflation forecasts were little changed, with policymakers predicting a peak of 2.8% in the first half of next year, before a gradual fall back towards the 2% target. The most recent MPC minutes noted that some members were getting a little closer to the limits of their tolerance for higher inflation, which means that if price or wages continue to rise more quickly than expected, we could see at least some votes for the first interest rate rise in more than a decade.”
Andrew Tully, pensions technical director, Retirement Advantage adds: “Households across the country are feeling the inflation squeeze, and people will need to find ways to cut back to make ends meet. We continue to see suppressed wage growth, so even a low level of inflation will continue to affect the budgets of ordinary working people.
“The cost of living and having enough money are some of the biggest issues highlighted by people approaching retirement. Which is perhaps why one in two over 50s say they will work beyond their planned retirement age.
“Even moderate inflation can have a devastating impact on incomes in retirement. But how do you balance the need to pay the bills and also ensure your savings last the duration of your retirement? Stocks and shares are usually seen as the best hedge against inflation, showing the benefit of using a blended approach of using an annuity to meet essential expenditure and income drawdown for flexibility and to create an element of inflation proofing.”