The cost of living surged 3.2% over the past year – the sharpest increase since records began in 1997.
Economics commentator Maurice Smith appeared on STV current affairs show Scotland Tonight to explain why prices have gone up and what it means for you.
Here’s what he had to say.
Scotland Tonight: A lot of this inflation rise has been put down to last summer’s Eat Out to Help Out scheme, hasn’t it?
Maurice Smith: It has and if you compare prices a year ago, when they were effectively being subsidised in restaurants and bars by the Treasury in an attempt to revive the industry, of course prices today, with no subsidy, are going to be a lot higher.
It’s not the only reason for inflation being at the level it is today, but it’s quite a strong reason and it’s certainly the main reason related to the pandemic.
ST: What are the other reasons?
MS: Generally we’re seeing almost a perfect storm of price rises and energy price rises that haven’t fully taken effect yet.
The rising cost of fuel – we’ve heard a lot recently about the recovery in the oil price – means higher prices for petrol and diesel at the pump, and food prices generally are also rising.
The main reason in the restaurant trade for increases is that food prices and wage costs are both on the increase.
ST: Is your shopping going to get more and more expensive in the coming weeks and months?
MS: In the short to medium term, we’re going to feel that pain when we’re shopping or when we’re paying household bills and so on.
Because these rises are coming, they haven’t taken full effect yet, especially in the energy sector. So, yes, certainly over the coming months into the winter we can expect prices to rise and the reasons for those rises aren’t going to go away quickly.
ST: What do you think inflation is going to look like towards the end of this year?
MS: The general sort of prognosis is that inflation will continue to rise. It could even reach 4% by the end of the calendar year.
The predictions are, and the UK Government will be hoping these hold true, that we will turn a corner during 2022, and that some of the causes of the price rises, such as uncertainty and food supply, will diminish, and therefore inflation will get back to what we know as normal.
We have lived with low inflation for many years now and low interest rates, and it’s been very good and stable, but the combination of Brexit, Covid and other factors has really created the perfect storm.
ST: Will this affect interest rates?
MS: I wouldn’t expect it to affect interest rates right now. If we had inflation continuing to press for quarter after quarter, then you would see great pressure on the Bank of England to push up interest rates.
We’ve been very fortunate in that interest rates have been so low for so long that it would take only a small increase perhaps to tackle the inflation problem, but it’s always a concern to the bank, who don’t want to push up interest rates too high.