Prices in the UK are rising faster following Brexit vote

Economists say that households are being squeezed as a result of the decision to leave the EU

Prices in the UK are rising faster following Brexit vote

File photo | Image: Photocall Ireland

Prices in the UK are now rising at an annual rate of more than 3% in the latest evidence of economic fallout from the EU referendum, according to figures seen by Sky News.

The sharp jump implies that real incomes are falling for the first time since 2014 - the clearest sign yet that households are being squeezed as a result of the decision to leave the EU.

While the UK's official inflation measure, the consumer price index, was 1.8% in January - well below the 2.7% annual rate at which wages are rising - economists have warned that because many of the CPI datapoints are collected manually the index is sometimes slow to reflect sharp changes in prices.

A well-respected measure of UK prices devised by MIT economists and collected from retailers online shows prices have been rising much faster lately.

The PriceStats inflation measure, published by State Street and seen by Sky News, shows that while prices were only rising at an annual rate of less than 1% before the referendum, the rate has risen to 3.3% in recent weeks.

The statistics imply that real wages, pay growth adjusted for inflation, may now be falling at an annual rate of 0.6% - compared with the positive 0.9% growth rate implied by the official inflation data.

Unlike the official inflation measure, which is only published monthly with a lag, the PriceStats measure, which has been used in many countries as an alternative to formal inflation statistics, is produced on a daily basis.

The economists who created it, Alberto Cavallo and Roberto Rigobon, have pointed out that while official US CPI statistics took some time to respond to the collapse of Lehman Brothers in 2008, their index responded the very next day.

In the Budget this Wednesday, the Office for Budget Responsibility is expected to confirm that inflation will rise comfortably above 2% in the coming year, as the higher cost of imported goods feeds into Britain's shopping baskets.

The PriceStats data suggest those price increases are feeding through far faster than economists had expected.

The data, obtained through listing thousands of prices on the internet, does not reflect prices in high street shops and only reflects goods prices rather than services - but economists see it as a useful forward indicator for the official inflation measure.

According to the ONS's own numbers, services inflation is running even higher than goods inflation, at 2.6%.
The ONS is working on its own experimental statistics collecting price data by scraping it off the internet, as with the PriceStats series.

However, it says it has no immediate plans to change the way it collects inflation statistics.