To be happy. The Bank of England has tamed the inflation dragon and returned it to its legendary 2 percent target for the first time since July 2021.
But looking at the Office for National Statistics figures, our analysis shows that inflation has totaled 20 per cent since then, as households have suffered higher costs from all the crises.
Some may have managed to absorb the price increases without breaking a sweat, but many others have had a miserable time trying to keep up with the inflation beast.
Much of the inflation drama was caused by spikes in energy prices due to the end of lockdown and global conflict – a domino effect affecting almost all businesses, with the extra costs then passed on to customers.
In the South East you now struggle to find a flat white for less than €3.50, or a pint for €6.50, and across the country we have had to contend with higher energy bills, rising supermarket costs, telcos lumping together Inflation based increases are sky high and that’s before you take into account the rise in council taxes, skyrocketing mortgage and rental costs, to name but a few.
These will not suddenly drop now. The price points have been set. In the imaginary basket of 700 goods and services, which represents what households buy, prices still rose by 2 percent in the year to May.
This is still a long way off when inflation peaked at a whopping 11.1 percent in October 2022, the highest rate in 40 years.
But the ease of inflation does not mean that prices will now magically fall. Some items in that basket have become cheaper, but overall the basket is still rising – just not as quickly.
Yes, wage growth has been steady – and has outpaced inflation since the middle of last year – but much of that has been sucked out by rising bills across the board.
Our personal finances have been a hot topic in next month’s election, with all the major political parties now setting out in their manifestos what they plan to do and how they think they can finance it (and of course a lot of that is fluffy, so to speak). it gently).
According to the ONS, the relief in annual inflation is due to ‘downward contributions’ from eight divisions, partly offset by ‘upward contributions’ from two divisions.
The biggest decline came from food and non-alcoholic drinks, with prices rising 1.7 percent through May 2024. That is the lowest figure since October 2021 and represents fourteen months of easing, compared to a recent high of 19.2 percent in March 2023.
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According to the ONS, the biggest downward pressure from this category came from a combination of bread and cereals, vegetables and sugar, jams, syrups, chocolate and confectionery. In both cases, prices fell between April and May this year, compared to a monthly increase a year ago.
But as the Energy and Climate Intelligence Unit notes, a basket of some basic food items has increased by 40 percent in the past three years.
It says the basket of goods – including potatoes, rice, broccoli and coffee – rose from £23.73 to £33.96 in that time.
For example, the price of a bottle of olive oil has increased by 136 percent since June 2021, from £3.64 to £8.60.
A bag of sugar has risen by 72 per cent from 69p to £1.19 and the price of potatoes has risen by 49 per cent, up 19 per cent since December 2023.
It says a 2.5kg bag of mashed potatoes now costs £2.20, up from £1.85 in just a few months, after a record-breaking wet autumn and winter hit the UK potato crop.
It notes: ‘While inflation has fallen since the start of the year, prices have remained at record levels, and for many foods they have not fallen since they started rising rapidly in the second half of 2021.’
Other areas that have seen an easing, according to the ONS, include leisure and culture, and furniture and household goods.
Transportation provided the upward offset, mainly due to higher costs for refueling the car compared to a year ago – although it was noted that used car prices have fallen dramatically.
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Price increases for essentials such as food and energy are being punished now that most of the rent and mortgage costs have skyrocketed.
The big question is: will the Bank take action by lowering the base interest rate? If market estimates are correct, the chances of a surprise cut today are zero, while for August the chances have increased despite the 2 percent being hit.
Pressure is likely to mount for a rate cut to potentially help lower personal borrowing costs – but the stars will have to align to convince more MPC members to cut.
Importantly, while the CPI measure of inflation is 2 percent, the core rate – excluding food and energy – was 3.5 percent, and services inflation is still 5.7 percent.
There is also a chance that inflation will rise again between now and the end of the year, with Ofgem’s cap on energy bills the most likely cause of this. Experts at Cornwall Insight think it could be £1,762 for the last three months of this year. per year, compared to £1,568 for July to September.
That would be a typical increase of 12.3 percent, which would again add to our monthly expenses.
The inflation dragon is sleepy, but not quite tired of the count.
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