Inflation fears as tax on pasties bites

Julian Harris
Follow Julian
GEORGE Osborne’s pasty tax and other hikes in VAT will push up the cost of living even further, according to official figures out yesterday, while new data suggests higher wages could also be about to stoke inflation.

The tax on hot food sold in retail outlets, along with higher duties on fuel, cigarettes and alcohol, will pile 0.38 percentage points on to the consumer price index (CPI) one-monthly rate, the Office for National Statistics (ONS) said yesterday.

CPI came in at 3.4 per cent last month, which was slightly higher than expected. The inflation rate has remained above the Bank of England’s two per cent target for 27 straight months.

Pressure from wages has been modest during this period, but data is now revealing that pay settlements have reached an average of three per cent, up from 2.5 per cent the same time a year ago.

“Higher-level awards – at four per cent or above – are being made in sectors where prospects have brightened recently,” said Ken Mulkearn from Incomes Data Services, which compiled the figures.

“Core inflation may prove stickier than expected,” said Henderson economist Simon Ward last night. “JP Morgan last week published a big upward revision [to its forecasts] – 2.9 per cent by December. It looks as if the Bank of England will revise up inflation estimates yet again.”

Last year’s Budget also pushed up costs, so the ONS’s annual comparison is less severe. Yet the 12-month rate of consumer price inflation will still be 0.17 percentage points higher because of Osborne’s changes.

The news comes as surging oil prices have forced the UK, US and French government to consider releasing emergency oil stocks to ease pressures.

Spot oil prices have surged by $20 (£12.61) since the start of the year and recently were trading at $125 a barrel, triggered by tensions between Iran and the West.

France’s energy minister Eric Besson yesterday responded to questions on whether France was willing to take part in a release of reserves: “It is the US that has asked for it. France is favourable to the suggestion.”

“We are waiting now for the conclusions of the International Energy Agency (IEA),” he added.