The consumer prices index (CPI) measure of inflation soared to 3.2% in August, up from 2.0% in July, which could put further upward pressure on wages.
According to the Office for National Statistics (ONS), the increase was driven by discounted restaurant prices in August 2020 resulting from the government’s Eat Out to Help Out scheme and reductions in VAT in order to support businesses across the hospitality sector.
The CPIH, which includes owner occupiers’ housing costs, rose to 3.0% in the 12 months to August 2021, up from 2.1% in the 12 months to July, while the retail prices index (RPI) – the inflation measure frequently referred to in pay negoatitions – has risen to 4.8% from 3.8% in July.
Jonathan Athow, deputy national statistician at the ONS, said: “August saw the largest rise in annual inflation month-on-month since the series was introduced almost a quarter of a century ago.
“However, much of this is likely to be temporary, as last year, restaurant and cafe prices fell substantially due to the Eat Out to Help Out scheme, while this year, prices rose.”
James Reed, chairman and CEO of recruitment firm Reed said the skills shortage in some sectors was pushing up wages. “There’s a competition between employers for people and there’s a great shortage of skills and of labour. The most pronounced is in the driving sector where jobs advertised on our site are up on average pay 60% year-on-year” he told BBC Radio 4’s Today programme.
“Entry-level driving jobs are paying up to £40-50,000 per year, which makes [those jobs] more attractive].”
The value of the average pay settlement stabilised at 2% between May and July 2021, XpertHR figures showed, compared to a median pay award of nil in the same period in 2020. Public sector pay awards during this period (2%) ran in line with the rate of inflation.
Jack Leslie, senior economist at the Resolution Foundation, said that the rise in inflation could also be due to increasing business costs owing to supply issues.
“The pickup in inflation was the fastest on record last month, driven by the impact of the ‘Eat Out to Help Out’ scheme last year, and ongoing supply bottlenecks this year,” he said.
“While inflation is on course to hit four per cent later this year, these effects are largely transitory and there is little policy makers can do to stem this cost of living crunch.”