UK inflation falls to lowest level in a year, but food prices continue to hold back
LONDON — Inflation in the UK fell to its lowest level since the immediate aftermath of Russia’s invasion of Ukraine, although it did not fall as much as expected due to higher food prices.
The National Statistical Office announced on Wednesday that the inflation rate measured by the consumer price index fell from 10.1 percent in March to 8.7 percent in April, largely because last year’s energy peak fell out of the annual comparison following the invasion. The drop pushed inflation to its lowest level since March 2022, a month after the war began.
While welcome, the drop was not as big as expected, especially as wholesale gas prices have been falling for months. The consensus in the financial markets was that it would ease further to 8.3%.
One of the main reasons why inflation is consistently higher than expected – and generally higher than in other G7 nations – is that food prices remain high, as anyone who does their weekly shopping at the supermarket can attest. According to the statistics office, food prices were still 19% higher than a year earlier.
According to Grant Fitzner, the chief economist of the statistical office, inflation decreased significantly, as the energy price increase experienced last year was not repeated in April this year, but it was partially offset by the increase in the price of used cars and cigarettes.
“However, prices generally remain significantly higher than they were this time last year, and annual food price inflation is near historic highs,” he added.
Chancellor of the Exchequer Jeremy Hunt welcomed the drop in single-digit inflation and said “food prices are still too high”.
Hunt held talks with food manufacturers on Tuesday about food costs and ways to ease the pressure on households. No measures to ease the burden on households were announced.
“Rising food prices are particularly painful for low-income families, three in five of whom have already reported having to cut back on food and other basic needs,” said James Smith, director of research at the Resolution Foundation.
Overall, Wednesday’s data backs up the International Monetary Fund’s assessment on Tuesday that UK inflation is likely to remain stubbornly high for years to come and will not return to the Bank of England’s 2% target until mid-2025, six months away. predicted at the beginning of the year.
Like other central banks, the Bank of England has aggressively raised interest rates over the past 18 months to a 15-year high of 4.5% after inflation soared, first due to bottlenecks caused by the coronavirus pandemic and then the Russian invasion. Ukraine.
Bank of England Governor Andrew Bailey also reiterated his view on Tuesday that borrowing costs should rise again if inflation remains stubbornly high. He also acknowledged that policymakers may have been caught off guard by the rate at which food prices have risen and remained high since the invasion of Ukraine, one of the world’s most important agricultural countries.
Samuel Tombs, the British chief economist of Pantheon Macroeconomics, said that a further 4.75% increase in the bank’s interest rate in June is now “definitely on the table” after the above consensus result in April and in view of the “sensitivity of households”. Inflation expectations for changes in food prices.