Inflation will rise this fall as Brexit and Covid come together | inflation

Consumers have been warned of an fall in the cost of living due to the sharp rise in household energy bills and food prices as the disruption from Covid and Brexit spreads through the economy.

Business leaders sounded the alarm for a wide range of products and services, saying the UK was facing a “perfect storm” of labor shortages and global supply chain problems that would spur inflation within months.

The warning about the cost of living comes as millions of households face declining incomes as the government prepares to cut universal credit by £ 20 a week from Oct. 6 and close the wage subsidy system on vacation into poverty.

Rebecca McDonald, Senior Economist at the Joseph Rowntree Foundation, said: “Millions of families are facing increasing stress and anxiety about how to meet their living expenses as the proposed universal credit cut fast approaching.

“It is unjustifiable that ministers are planning to cut universal credit at a time when families who are already making ends meet will see rising energy bills and more expensive items on the shelves.”

Darren Labbett, managing director of Woods Foodservice, a wholesaler that supplies pub and restaurant businesses, said the industry is doing everything it can to mitigate rising costs. However, a “perfect storm” for businesses would drive consumer prices higher.

Graphic of the manufacturing costs

“We, like the rest of the supply chain, cannot absorb these price increases forever,” he told BBC Radio 4. “Vegetable oil is now at its highest price in over 30 years.”

The cost of products like tomatoes nearly doubled in the past year, while consumer goods manufacturers like Nestle, Procter & Gamble, and Unilever have warned against raising their prices. Store prices in the UK have risen over the past month and retailers are warning that the cost of filling the shopping cart will continue to rise if the disruption continues.

The food industry is reporting widespread staff shortages – including fruit and vegetable pickers, meat processors and truck drivers – a shortage exacerbated by Covid-19 and Brexit.

Households are also prepared for the biggest spike in their energy bills in a decade, starting in early October when Ofgem, the energy market regulator, will raise its price cap for suppliers in response to rising energy prices around the world.

Up to 15 million customers protected by the price cap could see their bills spike, with those on standard tariff paying by direct debit expected to spike up to £ 139 from £ 1,138 to £ 1,277. Prepaid customers will see an increase of up to £ 153 from £ 1,156 to £ 1,309.

Fuel prices

Gas prices have soared to record highs as the global economy emerges from lockdown and energy demand increases. Reserves in storage facilities across Europe have plummeted to record lows after a long winter across the continent, while demand rises as countries prioritize the use of gas over coal due to lower CO2 emissions.

Wholesale electricity prices in the UK rose to a record high last month, fueling concerns that more families could be plunged into energy poverty this winter.

The lack of raw materials and labor, as well as booming demand for the world economy to reopen due to the coronavirus lockdowns earlier this year, has pushed costs for UK manufacturers to their highest levels since the 1990s.

Factories in Asia had to cut production due to a lack of computer microchips and increased coronavirus infections, while plants across Europe were also disrupted.

The cost of shipping and receiving goods has also risen sharply as businesses grapple with global disruptions related to Covid and issues in the UK from Brexit. The Baltic Dry Index, the leading index of the shipping industry that measures the average prices for the transport of dry bulk goods on more than 20 routes, has risen to a 10-year high in recent weeks.

worldwide shipping

According to the Office of National Statistics, production prices for factories rose 9.9% in the year through July, driven by the cost of metals and machinery, as well as wood, energy and chemicals.

Much of the impact on consumers, however, will depend on the willingness of companies to pass on higher costs, with manufacturers, wholesalers and retailers weighing the risk that higher prices could reduce sales volumes.

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In a signal of consumer pricing power, Reckitt Benckiser, maker of household products including Durex and Dettol, said in July that despite the rising cost of chemicals, it “just isn’t possible” to raise its prices, at least in the short term. Plastics and freight.

Despite increased demand for supermarket goods and disruptions in the supply chain, food prices fell 0.5% in the year through July during the Covid pandemic, according to the ONS.

The Bank of England expects inflation to peak at nearly 4% this year before falling back to its target rate of 2% as the Covid disorder recedes. However, traders warn that prices will rise soon.

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