Cost of living: How does UK inflation compare to other G7 countries?

LONDON, ENGLAND - NOVEMBER 26: Shopper at Oxford Circus on November 26, 2022 in London, England. UK retailers are bracing for a sales slump this holiday season as consumers feel the pinch of inflation and rising costs of living. (Photo by Hollie Adams/Getty Images)
The UK is not alone in being hit by soaring inflation, but domestic pressures are making it worse. (Getty Images) (Hollie Adams via Getty Images)

UK inflation has soared to its highest level in over 40 years, with many households now struggling to pay bills and heat their homes.

The problem is largely driven by surging fuel and food costs, with energy bills almost twice as high this winter as they were last year, and food inflation hitting a new high of 12.4%.

The Bank of England (BoE) has been scrambling to get the cost-of-living crisis under control by increasing interest rates, driving up the cost of mortgages and loans, and increasing the incentive to save.

Despite the central bank's efforts to control consumer price index (CPI) inflation, which now stands at 11.1%, many businesses are still expected to raise their prices in the coming year.

While much of the world has been hit by the spiralling cost of living, the UK is one of the worst hit members of the G7, a group of seven wealthy democracies.

How does UK inflation compare to other G7 nations?

Inflation in G7 Countries - ONS and OECD data - Yahoo News UK
Inflation in G7 Countries, according to ONS and OECD data. (Yahoo News UK) (Yahoo News UK)

The UK has been badly affected by rising prices, but it is by no means the only country facing these economic challenges, as shown by a recent Office for National Statistics (ONS) report.

It says: "The recent increase in price inflation has been a global feature, where higher producer prices have been feeding through into consumer prices.

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"In recent months, consumer price inflation has been at multi-decade highs for all G7 countries, except Japan, which remains an outlier."

Data shows that UK inflation is among the worst in the G7, coming second only to Italy, whose inflation is now nearly 12%.

The UK has had the highest rate of energy price inflation in recent months, peaking at around 58% in July, according to the ONS.

G7 inflation, ONS
Current inflation is still nowhere near as bad as during the oil shocks of the 1970s. (ONS) (ONS)

However, Italy has since caught up, with its rate shooting to 71.1% in the year to October, compared to 44.% in September.

Like many European countries, Italy has seen energy prices skyrocket after Russia dramatically cut gas supplies since the Ukraine crisis.

A knock-on effect on wholesale prices still affects the UK despite it being less dependent on Russian gas, while the country has some of the least energy efficient homes in Europe and heavily relies on gas to heat houses and produce electricity.

The ONS report says that while energy price inflation has remained elevated in the UK, Italy and Germany, it has fallen back in the US, Canada and France more recently.

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Food inflation is also running high in the UK, with prices of food and non-alcoholic beverages rising by 16.2% year-in-year in October, although Germany is still higher at 19%.

A new BoE report says "not all of the excess inflation can be attributed to global events", claiming domestic factors such as a "tight labour market" and "the pricing strategies of firms" are affecting Britain specifically.

The Bank's chief economist told a conference on Wednesday: "Brexit has probably reduced some of the competitive pressure in the goods market, because it just is harder to import things into the UK from Europe... that has probably proved to be somewhat inflationary."

The Bank predicts inflation will peak at the end of this year, before "falling back substantially" over the following year.

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