UK “all items” inflation was flat in May, remaining at +8.7% year-on-year, by the CPI method. Food inflation fell from +19.0% in April to +18.3%, which is in line with IGD’s latest forecasts.
The latest inflation release from ONS shows that overall inflation in the UK has remained high, staying flat at +8.7% year-on-year.
The largest upward contributions came from air travel and recreation and cultural items. Annual inflation for services rose from +6.9% to +7.4%
“Core” inflation, excluding the most volatile items such as energy, food, alcohol and tobacco, rose by 7.1%, up from 6.8% in April. This is the highest rate for 30 years.
Rising services and core inflation suggest that wage rises are becoming embedded into the economy and driving prices, as labour is the primary cost for these parts of the economy.
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Source: ONS, May 2023
UK food and drink prices in April 2023 were up +18.3% year-on-year, by the CPI method, a fall of 0.7 percentage points from the previous month.
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, download our latest Viewpoint report “Exploring what’s next for food price inflation”
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Source: ONS and IGD calculations, May 2023
The latest figures now make clear that the UK economy has an inflation problem. Rising core inflation, alongside last week’s announcement on rising wages, indicate that inflation is unlikely to dissipate soon.
Persistent inflation could lead to the Bank of England raising interest rates to higher levels than previously predicted. This is likely to have a negative impact on economic growth.
Households have already faced significant hardship from energy and food costs in recent years. Rising mortgage rates will maintain the historic squeeze on household incomes in the coming years.
To understand more about IGD’s Viewpoint on the latest economic trends, consumer sentiment and policy analysis, register for our upcoming webinar on 13 July.
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