Steepest fall in headline inflation since start of cost-of-living crisis undermined by sticky food prices – AJ Bell

by | May 24, 2023

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Danni Hewson, head of financial analysis at AJ Bell, comments on the latest UK inflation figures.

She said: “I don’t think many people will be cracking open a bottle of reasonably priced sparkling wine this morning.

“Inflation might finally have dipped below double digits for the first time in eight months, but food inflation is still ridiculously high and looking at core numbers there are real concerns about how sticky inflation is likely to prove in the long run.

“The price of some staples has fallen with things like cereal, bread and milk down, but the cost of some vegetables including potatoes was up and the time lag between wholesale costs falling and that filtering through to supermarket shelves means shoppers are unlikely to be dancing down the aisles.

 
 

“In April last year households were dealing with the shock increase in energy prices as that price cap shot up. That increase has now dropped out of comparisons, but that doesn’t mean we are paying less for our energy. 

“For that we will have to wait until July and even then, if the cap does fall to around £2,000 for an average household, the end of that lovely £400 rebate scheme means most people will find they are paying pretty much what they were back in October. 

“With core inflation heading the wrong way it sets the scene for at least one more interest rate hike and looking at market expectation this morning it seems there’s speculation the Bank of England might go as high as a 5.5% base rate in order to complete its task. 

 
 

“Wages have risen, even if most people haven’t felt the benefit because of those price hikes, and businesses will have to find a way to recoup those increases if they haven’t already passed the costs onto their customers.

“It will be a relief to many that the UK economy has proved more resilient than expected, including the IMF. But that resilience may come at a cost as it may have provided the exact conditions that inflation needed to creep insidiously into the economic fabric.” 

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