TUC says jump to 1.8% would put squeeze on living standards at time of falling wage growth

This article is more than 6 months old

This article is more than 6 months old

Inflation jumped to a six-month high of 1.8% in January after a surge in petrol prices and an increase in the cost of gas and electricity over last year.

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The surprise increase in the consumer prices index (CPI), which exceeded forecasts of a rise to 1.6%, brought the main measure of inflation closer to the Bank of England’s target of 2%.

The Office for National Statistics said an increase in fuel and energy costs forced up household heating bills and fed into the transport industry’s overheads.

Price increases also affected clothing, footwear and restaurants and hotels, while there was downward pressure from heavy discounting in furniture, household equipment, food and non-alcoholic drinks.

Gas and electricity price increases in part reflected a comparison with January last year, when the government imposed a cap on energy companies, the ONS said.

Petrol prices also compared unfavourably with January 2019, which was a period of falling costs on garage forecourts. The ONS said prices at the pump rose between December 2019 and January 2020 by 2.3 pence a litre but fell in the same period a year earlier.

Prices for clothing overall fell by 3.3% between December 2019 and January 2020, compared with a fall of 4.6% in the same period a year earlier.

The ONS said its preferred measure of inflation, CPIH, which includes housing costs, jumped from 1.4% in December to 1.8% in January.

In December, inflation fell to 1.3%, its lowest level for more than three years, down from 1.5% in November.

The Bank of England had been expected to cut interest rates last month in response to the fall in inflation and data that showed the economy stagnated in the last quarter of 2019. The monetary policy committee (MPC) decided to keep the base rate at 0.75%.

A rebound this year in business confidence, an expected increase in government spending and the latest rise in consumer prices means the MPC is likely to keep the rate unchanged when it meets next month.

The TUC said the jump in inflation to 1.8% would put a squeeze on living standards after regular wages growth fell for sixth months in a row until December.

The growth in average weekly pay dropped to 3.2% in the three months to December, down from 3.4% in the same period to November. Growth in total wages – which includes one-off payments, fell to 2.9%, from 3.2% a month earlier.

Frances O’Grady, the TUC general secretary, said: “The economy needs an urgent boost to bring back solid growth.”

The GMB union said a rise in the retail prices index, which the government uses to set annual train fare increases and the interest rate on student loan repayments, jumped from 2.2% to 2.7%, adding to the burden faced by workers who commute and young graduates.

The consultancy Capital Economics said there were few price pressures in the economy and inflation was likely to remain subdued.

“For the MPC, the fact that inflation is evolving in line with its projections provides another reason not to cut interest rates in the near term,” it said.

The new chancellor, Rishi Sunak, said: “Families across the country are better off as a result of the strong wage growth and low inflation over the last 18 months.”

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Janine Boshoff, an economist and forecaster at the National Institute for Economic and Social, said the December dip in inflation was always likely to be reversed in January.

“CPI is likely to remain volatile in the months ahead,” she said. “Higher prices in the housing and household services as well as transport categories were not fully offset by sales in the month of January.”

In line with most City economists, Boshoff said the January increase was unlikely to be the precursor to runaway price increases.

