Inflation rate falls to 7.9% in June

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Inflation finally showed signs of easing as it fell to 7.9% in June as fuel and food prices dropped but the rate remained the highest in the G7

Falling prices for petrol and diesel led to the largest downward contribution to the monthly change in CPI, while food prices rose in June 2023 but by less than in June 2022, also leading to an easing in the rates.

The easing in the annual inflation rates in June 2023 principally reflected price changes in the transport sector, particularly for motor fuels. There were also notable downward effects from food and non-alcoholic beverages, furniture and household goods, and restaurants and hotels, the Office for National Statistics said.

Annual food inflation was 17.4% and although the price of milk, cheese and eggs fell in the last month, chocolate, sugar and soft drink prices increased.

Overall, fuel prices fell by 22.7% in the year to June 2023, compared with a fall of 13.1% in May. Average petrol and diesel prices stood at 143.0 and 145.7 pence per litre respectively in June 2023, compared with 184.0 and 192.4 pence per litre in June 2022.

The drop could help to sway the Bank of England to take a less bullish stance on interest rates, with expectations now indicating a 0.25% rate rise in August rather than the widely predicted 0.5% pencilled in by markets.

Nicholas Hyett, investment manager, Wealth Club, said: ‘June inflation numbers have come in comfortably below expectations. There will be real hopes that this marks a turning point for UK inflation. It’s been stubbornly high even as other economies have started to see price rises ease, and that’s created a cruel cost of living crunch.

‘With other indicators, such as corporate insolvencies, also suggesting the economy is weakening the next challenge is to keep the economy from collapsing into the deep freeze and trigging a painful recession. The Bank of England may ease off the peddle where interest rate rises are concerned, but it’s careful balancing act isn’t over yet.’

With inflation finally falling, albeit still significantly above the Bank’s 2% target rate, there are expectations that inflation could fall to 3% in 2024.

Lisa Hooker, industry leader for consumer markets at PwC, said: ‘After the disappointment of more persistent than expected inflation in May, June’s reduction in headline CPI from 8.7% to 7.9% is a relief for consumers and industry alike. This was widely trailed as a result of lapping the one-year anniversary of the biggest price rises in energy and petrol caused by the Ukraine conflict. It’s for this reason that we expect the good news to continue, with gradually lower inflation through the summer and autumn.

‘While overall CPI has remained higher than expected, consumers have been better able to cope in recent months, thanks to increases in both National Living Wage and benefits in spring, as well as pay settlements in both the private and public sectors.

'The real test will be whether incomes rise faster than inflation by the end of the year, which would give shoppers their first real-terms improvement in living standards since before the pandemic.’

For more information on minimum wages, visit BrAInbox today where you can find answers to questions like What is the national living wage?

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