Ken Mulkearn | 15 Sep 2021

Inflation rates at their highest for many years

There has been a sharp rise in inflation this month on all three key measures. The latest official information indicates that CPIH, the Government’s main measure of inflation, now stands at 3%, up from 2.1% in July. This is the largest monthly increase in the CPIH rate since January 2006 when records began although the ONS points out that it is partly due to base effects arising from discounted prices in restaurants and cafes during August 2020 when the Government introduced the ‘Eat Out to Help Out’ scheme and also the reduction (still in force) in VAT from 20% to 5% across this sector. Other contributions to the August 2021 inflation rise came from transport, recreation and culture and food and non-alcoholic beverages.

The CPI rose by 3.2% in the 12 months to August 2021, an increase of 1.2 percentage points from July 2021, which again is the largest monthly increase since records began in 1997. 

The RPI, meanwhile, now stands at 4.8%, up from 3.8% the previous month. This is the highest rate seen in almost a decade, since this measure hit 5.2% in November 2011. We can see that prices for catering, which include restaurant meals and are therefore similarly affected by (temporary) base effects, have greatly contributed to the change in the RPI annual rate followed by motoring expenses, where prices overall rose this year by more than a year ago, particularly for second-hand cars and, to a lesser extent, new petrol/diesel cars.

Comparison of prices has been difficult over the past 18 months as the pandemic has limited the supply of, or access to, some items. However, following the easing of social restrictions in April of this year, no items remain unavailable to consumers. The last item to become available was football admission prices but this made a negligible contribution to the change in the CPIH 12-month inflation rate between July and August 2021.