The UK is experiencing an unexpected decline in inflation, with the Consumer Prices Index (CPI) falling to 6.7% in August while standing at 6.8% in July. The sudden fall eases the strain of grocery expenses on consumers, but still leaves inflation over three times above the UK’s target of 2%.
UK inflation is at its lowest since the period of Russia’s invasion of Ukraine in February last year, which raised food and oil costs.
Chancellor Jeremy Hunt pointed out that inflation never falls in a straight line but it is now down 40% from its peak. “The plan is working,” he says.
“But we need to stick to it: even at 6.7% there’s still immense pressure on family budgets. That means no borrowing binge, which would simply keep interest rates higher for longer.”
Drop in milk, cheese and egg prices
According to the Office for National Statistics (ONS), the biggest contributors to the yearly CPI inflation rate were food and non-alcoholic beverages, where prices “rose by less in August 2023 than a year ago.”
Price rises for food and non-alcoholic drinks eased to 13.6% in the year to August, down from 14.9% in July, according to the ONS.
The segment’s prices rose by 0.3% between July and August 2023, compared with a rise of 1.5% between the same two months a year ago. This propelled the recent high of 19.2% in March 2023, which was the highest annual rate seen for over 45 years.
Milk, cheese, eggs, vegetables and fish segments drove the decline the most, among which, the annual rate for milk, cheese and eggs plummeted to 15.3% in the year to August 2023, down from 18.7% in July.
Further, between July and August 2023, vegetable prices fell, as opposed to last year’s rise in the same months. This led to a decline in annual rate from 16.7% in July to 14.0% last month.
Alternatively, yearly fish rates came down to 6.8% in August from July’s 13.4%, which can be attributed to fresh, chilled, frozen and processed fish and seafood sales.
Grant Fitzner, chief economist at the ONS, states that the breakdown of statistics on food and non-alcoholic drinks shows “a bit of a mixed picture,” with some prices – in things like bread and cereals – still going up, while others saw falls.
Falling, but still high
The ONS flags that even with the present drop in prices, UK inflation remains above that of the EU and US.
In March, UK food price inflation was among the highest across G7 economies, second only to Germany.
The COVID-19 pandemic, labor shortages leading to unharvested crops and droughts and cold snaps in Europe and North Africa, which led to higher imported food prices were behind this rise, according to the ONS.
Last month, a drop in meat, cooking oil and potato prices drove food inflation, according to the BRC.
The surprise inflation could impact bank interest rates as well. Tomorrow, the Bank of England will announce its decision on the possibility of raising the interest rates amid its inflation battle.
