Inflation falls to 2%
20 June 2024Featuring analysis of the latest food inflation data and IGD opinion.
The latest data from ONS shows that all items inflation fell from 2.3% year-on-year in April 2024 to 2.0% in May, when measured by the CPI method. Falling utility prices played a key role in this change.
Inflation is aligned exactly to the government’s target – this may have been achieved ahead of expectations.
Bank of England forecasts suggested that this would happen at some point over 2024 to 2025, whereas it actually occurred in the first half of 2024.
Prices for goods have fallen slightly year-on-year, but this was offset by ongoing inflation for services, probably due to ongoing wage pressure.
Food and drink inflation fell quite sharply from 2.9% in April to 1.7% in May, which is the lowest rate since October 2021. Alcohol and tobacco inflation fell from 8.1% to 7.8% and foodservice inflation fell from 5.7% to 5.4%.
IGD Opinion
Millions of hard-pressed UK households will welcome a further fall in inflation – although there is little sign that the cost of living is actually falling.
Looking ahead, it is likely that the downward “leg” of inflation is coming to an end and that inflation will soon level off at or near the current rate. There are two reasons for this belief.
First, just as items driving year-on-year inflation fall out of annual price comparisons after a year, items driving deflation also drop out as time goes on.
For example, a major reduction in domestic energy prices in July 2023, implemented via the Energy price cap will soon exit annual price comparisons.
Secondly, some inflationary pressures remain in place, especially wage and motor fuel inflation.
Note that the Labour Party manifesto specifies that the current target inflation rate of 2% will be retained, should they win the election. The Conservative manifesto does not address this point directly.