Inflation continues to slow

Date : 17 August 2023

UK “all items” inflation declined in July, to +6.8% year-on-year, by the CPI method. Food inflation fell from +17.3% in June to +14.8% in July, which is marginally lower than IGD’s latest forecasts.

The latest inflation release from ONS shows that overall inflation in the UK has fallen to 6.8% from 7.9%. This is the second consecutive month that inflation has fallen significantly.

The decline in the inflation rate reflects the change in the energy price cap at the beginning of July. There were also downward contributions from specific food products, including milk, bread and cereals – items targeted by businesses for tactical price cuts.

Upward contributions from hotel accommodation and air travel offset some of the downward contributions to the inflation rate.

“Core” inflation, which excludes the most volatile items such as energy, food, alcohol and tobacco, remained flat at +6.9%. This is just below the peak of core inflation of 7.1% in May, which was the highest level in 30 years.

“Core” inflation rate has remained high for the past 3 months and is not showing signs of fading away. This may indicate that record wage rises are having an impact in slowing the decline in inflation, but not necessarily significantly driving price rises yet.

Any future upward movement in the “core” inflation rate, would suggest that we are moving towards an environment where wage rises are driving price rises.

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Source: ONS, August 2023

UK food and drink prices in June 2023 were up +14.8% year-on-year, by the CPI method, a significant fall of 1.5 percentage points from the previous month.

This is marginally lower than our latest food inflation forecasts. Our forecasts indicate that inflation has now peaked and will decline slowly over 2023. In December 2023 food inflation is predicted to be between 8% and 10%.

To read our full analysis on what is next for food inflation and how consumers are faring, download our latest Viewpoint report “Persistent inflation, politics and labour challenges.”

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Source: ONS and IGD calculations, August 2023

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