PM\u2019s plan to shield households from more pressure risks being overwhelmed by wider price rises<\/p>\n
July\u2019s increase in inflation, to 2.9%, is likely to be the first of several, underlining the challenge facing Andy Burnham in shielding consumers from a fresh cost of living squeeze this autumn.<\/p>\n
Rising energy bills, as an increase in Ofgem\u2019s quarterly price cap came into force, were the main driver of the jump in inflation, from 2.6% in June. That was partly offset by cheaper fuel prices \u2013 the knock-on effect of hostilities easing in the Middle East, after Donald Trump hailed his \u201cmemorandum of understanding\u201d with Iran in June.<\/p>\n
However, fuel prices have risen again in recent weeks as hopes of a permanent end to the conflict have faded, and the Ofgem price cap for household energy bills in Great Britain is expected to rise by 4% in October.<\/p>\n
Burnham\u2019s early decision as prime minister to cut VAT from electricity bills will help to ease the pressure on budgets, but it risks being overwhelmed by wider price rises.<\/p>\n
Food prices have been remarkably quiescent so far in the face of the conflict, rising at an annual rate of only 1.3% in July, down from 1.7% a month earlier. But it is likely there is worse to come, as a result of extreme heat and drought through the summer months.<\/p>\n
As Liliana Danila, the chief economist of the Food and Drink Federation, put it: \u201cSupply chain disruption isn\u2019t going away. Alongside geopolitical volatility, extreme weather will continue to put pressure on the price of key ingredients. This makes it increasingly difficult for food manufacturers to shield consumers from price rises and protect their own resilience.\u201d<\/p>\n
While consumers face a tough autumn ahead, there was little in the latest inflation data to concern the Bank of England yet, as its policymakers judge whether they need to raise interest rates next month.<\/p>\n
Core inflation, which excludes volatile fuel and food to give a picture of underlying inflation pressures, was unchanged at 2.6%, and Tuesday\u2019s snapshot of the jobs market showed wage growth slowing.<\/p>\n
That suggests dreaded \u201csecond-round effects\u201d, in which workers bid up their wages and embed inflation in the wider economy, are yet to materialise. However, weak pay growth also means consumers will be feeling the full force of rising inflation \u2013 which will increase the clamour for help.<\/p>\n
The TUC general secretary, Paul Nowak, said: \u201cWith inflation ticking up because of rising energy bills \u2013 and no end in sight to Trump\u2019s illegal war in Iran \u2013 we are going to have to see more government action to support households in the coming months.\u201d<\/p>\n
As the new chancellor, John Healey, weighs the price of energy support for struggling households, however, he will have to contend with higher borrowing costs.<\/p>\n
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Rising inflation is one factor contributing to the government bond sell-off that has been sweeping major markets in recent days \u2013 driving the yield, or interest rate, on 10-year UK government bonds to an eye-watering 5.05%.<\/p>\n
If it continues into the autumn, that will have a knock-on effect for the public finances, pushing up the Treasury\u2019s interest bill.<\/p>\n