Belfast Telegraph

Ulster Bank chief: price rises to hit us hardest

By Jamie Grierson and Margaret Canning

Soaring energy bills and record increases in clothing prices helped push the rate of inflation to near a three-year high last month.

The consumer prices index (CPI) rate of inflation rose to 4.5% in August, up from 4.4% in July, the Office for National Statistics (ONS) said. This was equal to the CPI rate in May and was last higher in September 2008.

Ulster Bank chief economist Richard Ramsey said Northern Ireland's households had most to fear from rising inflation if the coming winter is as harsh as last year.

"Given Northern Ireland's low wages, relative to the UK, and higher incidence of fuel poverty, it will be more adversely affected than the UK as a whole."

He added that August's update revealed the impact of the credit crunch on inflation four years after the financial crisis began.

"UK CPI is up 14.7% in four years or around 3.7% per annum, so for individuals to have maintained their standard of living during the last four years they would have had to experience a rise in after-tax earnings of 3.7% per annum.

"Those individuals who have received an annual pay rise (even before tax) of this amount will be the exception not the rule.

"Those individuals in lower income households and pensioners will have a much higher inflation rate as they spend a higher proportion of their income on necessities - ie, food and fuel. Food prices are now some 29% higher now than they were four years ago."

Northern Bank chief economist Angela McGowan said rising inflation presented a "bitter pill".

"High inflation erodes household living standards, effectively reducing their real wages, and typically hits the poorest households the most...With such a weak recovery in the UK and the global economy now also under significant strain, we can be confident that the Bank of England has no intention of lifting the base rate to fight the high inflation figure."

Housing, water, electricity and gas prices increased by 5.1% year-on-year, the ONS said - the highest annual increase since July 2009.

Power NI - the new name for NIE Energy - is set to raise its prices by 18.6% from the beginning of next month.

Despite the spike, Adam Posen, a member of the Bank of England's Monetary Policy Committee (MPC), argued high inflation was not a threat to the UK's recovery.

Popular