Britain’s main inflation rate is easing, but some items in the basket of goods that consumers buy are still rising sharply, contributing to a spiral that the Bank of England wants to choke off.
(Bloomberg) — Britain’s main inflation rate is easing, but some items in the basket of goods that consumers buy are still rising sharply, contributing to a spiral that the Bank of England wants to choke off.
Official statistics showed the Consumer Prices Index slid to 6.8% last month from a four decade peak of 11.1% late last year. Fuel prices have retreated since the crisis that sparked the current round of inflation last year, but some categories like food, hospitality and home rental costs still are feeding upward momentum in prices.
The result is that inflation remains well above the BOE’s 2% target and has come in stronger than economists expected in five of the past six months. That will add to pressure for higher interest rates. BOE Governor Andrew Bailey earlier this month warned borrowing costs will have to remain “sufficiently restrictive for sufficiently long” to bring inflation back down.
Following are charts showing the factors guiding the UK’s inflation figures:
Falling energy prices provided the largest downward contributions to the monthly change in CPI annual rates. That impacted the transport category, which benefitted from a drop in petrol. Natural gas is also well below its peak last year after a milder winter and reduced demand helped build up healthy storage levels.
A drop in fuel prices was the main factor pushing transport costs lower, but within that category other items, especially airline tickets, are still rising sharply.
Although food inflation eased in July, it still stands at 14.9%. Staples like cucumbers, cheddar cheese and a nip of whiskey are all at least 20% more expensive than a year earlier, and sugar has increased 50%. Food inflation is the largest contributor to CPI and a big driver of the current cost-of-living crisis in the UK.
There are fears it could be sticky with the United Nations’ index of food-commodity prices rising in July for the first time in three months, as trade disruptions in regions from India to the Black Sea and extreme weather stoke supply concerns anew.
Housing is another factor. While mortgage lenders have reported falling prices for much of this year, that’s been slower to show up in official statistics. Land Registry data showed that the average UK house price was £288,000 in June, down just £5,000 from the peak last year.
Actual rents recorded by the ONS rose at their fastest pace month-on-month in 18 years. This reflects soaring tenant demand and fewer properties available to rent, and a huge rise in social landlord rents.
Many items are still rising in price — and soaring at a pace roughly triple the headline inflation rate. Cigarettes, auto insurance, bacon, beer and foreign holidays are all rising at least 20% in cost compared with a year ago.
Sugar especially is on the rise along with the cost of many soft commodities, due to supply constraints and the return of the El Niño phenomenon that upsets weather patterns and crop cycles. It’s produced hotter, drier weeks in some places and threatens to further limit production.
In the UK, sugar has becomes increasing expensive after last summer’s drought and winter frost hurt output across Europe.
Insurance premiums also are rising sharply, with underwriters saying they’re paying out more in claims than they take in through premiums. Transport insurance prices rose almost 50% over the last year, mainly from accelerating premiums for insuring motor vehicles.
The cost of car repairs has gone through the roof after the war in Ukraine closed production facilities and pushed up the price of spare parts. Insurers are also facing higher wage bills amid a shortage of mechanics in the UK. Some reported a 40% rise in labor costs in the second quarter this year, according to the Association of British Insurers.
- London House Prices Record the First Annual Drop Since 2019
- Why UK Inflation Is So High and Tough to Bring Down: QuickTake
- UK Holiday Costs Drive Stronger-Than-Expected Inflation
- Cost of Your Caffeine and Sugar Fix to Stay High on El Niño
–With assistance from Mumbi Gitau, Megan Durisin and Irina Anghel.
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