CPI Inflation went back up in July compared to June, but the increase was predicted due to gas and electricity prices falling less than they did last year.
July saw a 2.2% increase in Consumer Prices Index (CPI) inflation, up by 0.2% from the previous month, according to the Office for National Statistics (ONS). This marks the first inflation increase this year. CPI inflation is also known as ‘headline inflation’ and covers items like goods and services typically used by households.
Housing and household services caused the rise, with gas and electricity prices falling less than last year. Services inflation is at 5.2%, higher than analysts would like, but a fall from 5.7% in June.
However, Core CPI, which excludes food, alcohol and tobacco, rose by 3.3% in July 2024, which was a drop from 3.5% in June.
Domestic energy costs fell
Grant Fitzner, chief economist at the Office for National Statistics, says: ‘Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago. This was partially offset by hotel costs, which fell in July after strong growth in June.’
The Bank of England reduced the base rate from 5.25% to 5% on 1st August. This marked the first rate cut since August last year, following 14 consecutive rate hikes. The bank has said it expects CPI inflation to rise further, nearing 3% by the end of the year.
During the most recent Bank of England’s Monetary Policy Committee meeting, it was projected that inflation could reach around 2.75% in the second half of this year.
Experts suggest a September rate cut is unlikely but predict that the Bank of England may lower rates further this year. Core inflation is at its lowest since September 2021 and this is most likely to influence future interest rate decisions.
Recent inflation trends
The past couple of years have been challenging, with businesses and households grappling with the impact of inflation. Between September 2021 and September 2023, food and drink prices soared by 28.4%, as reported by the Institute for Fiscal Studies.
However, recent data from the Office for National Statistics offers a glimmer of hope. By July, food price inflation had notably settled to just 1.5%, indicating a potential easing of pressure on grocery budgets.
Impact on households
For many households, the recent dip in food price inflation is a welcome relief. The higher costs of living, exacerbated by rising prices, have significantly strained household budgets.
However, while food prices are stabilising, other expenses continue to pose challenges. Costs associated with essential services – such as hotel stays, gym memberships, and car repairs – remain elevated, though they are beginning to edge down. This suggests that the broader trend of inflation may be starting to ease, but there is still a long way to go before households feel fully financially secure.
Implications for businesses
Businesses, particularly those in the service sector, have also felt the weight of inflation. Rising operational costs, compounded by increased wage bills, have squeezed profit margins.
Future economic trends
While the recent trends in inflation offer cautious optimism, the road to economic stability is still unpredictable.
More inflation figures will be release.