A couple of weeks ago, when it raised interest rates to 4.5% – the highest level since 2008 – the Bank of England warned it would not hit its target of inflation falling below 2% until early 2025. In terms of progress this year, the Bank of England had previously forecast inflation at 3.9% by the end of 2023 but has revised that figure to 5.1% in the final quarter of the year. If correct, the government will be able to keep their pledge to halve inflation by the end of the year. Just. (Chancellor Jeremy Hunt has stuck by the current targets, making it clear they won’t be changed. Will be interesting to see if that remains the case as we move closer to the next General Election. Only time will tell!)
It’s always interesting to put our own numbers into the context of those around us. In Germany and Spain, for instance, falling energy prices have had a noticeable knock-on effect on the rate of inflation. Spain’s rate halved from February (6%) to March (3.3%) and despite an uplift in April, still sits at two-thirds (4.1%) of that February figure. Germany’s inflation has continued to gradually come down, reaching an 8-month low of 7.2% in April.
In the US, inflation dropped below 5% for the first time in two years in April, thanks to a ten-month run of slowing prices. As with in the UK, the US central bank raised interest rates in an effort to control inflation. But unlike here, the rate only peaked at 9.1% last year, the highest it has been since 1981.
It’s probably worth noting at this point, that there are two key figures we tend to look at when we talk about inflation – the CPI (Consumer Prices Index) and the core CPI. (The Retail Price Index, which might still ring bells, was replaced by the CPI as the key measure of inflation in 2003.) The main difference between the CPI and the core CPI is the inclusion of food, alcohol, tobacco and energy.
You’ll have noticed the price of fuel – both for your car and heating your house – falling thanks to a degree of calm being restored over natural gas supplies. (And, of course, as we move into a warmer(ish) season and stop panicking quite so much over supplies.) This reduction in energy prices is playing a large part in the slowing of the UK’s rate of inflation. And it’s nice to be able fill up the car for under £1.50 a litre again, that £2/litre from the motorway services was painful. But these price drops are being counter-balanced by the cost of food.
Over the last few months, I guarantee your weekly grocery bill has gone up. Significantly. Depending on what you’re buying, by as much as nearly 20%. There’s a range of reasons for the price hikes – poor harvests, bad weather, the impact of Brexit, surging energy costs and disruption to the fertiliser supply chain for farms – but the bottom line is they’re hitting consumers hard. Sugar is up 42%, sauces, condiments, salt, spices and herbs are up almost 34% and milk, eggs and cheese are up almost 30%. We’re talking about store cupboard and fridge essentials for most households.
So, while the Bank of England may no longer be forecasting a recession and the Chancellor is holding firm on his 2% inflation target, the impact of the cost of living crisis is going to be noticeable for all of us for a good while yet.