Inflation falls to 8.7% but food prices remain high

The rate of inflation dropped to 8.7% in April from 10.1% the previous month, the largest fall in inflation since the Bank of England began raising interest rates in 2021

The UK saw the sharpest fall in inflation since the cost of living crisis began, with a drop in the annual rate to 8.7% this month, according to the Office for National Statistics (ONS).

The consumer price index (CPI) fell below double digits for the first time since August 2022, with a decline from 10.1% in March.

A combination of a fall in energy and petrol prices contributed to the drop, although this was offset by the rise in the cost of food and non-alcoholic drinks, which soared by 19% in the 12 months to April.

Prices for items such as rice, pasta and fruit climbed faster on an annual basis than in March, seeing a monthly increase of 1.4% compared with a rise of 1.5% in the equivalent period last year – the fastest annual rate seen since 1977.

In addition, tobacco prices also kept the headline rate high, which rose by 6.8% in the 12 months to April, up from 6.2% in March, which was the highest rate since 1992.

Grant Fitzner, ONS chief economist, said: ‘The rate of inflation fell notably as the large energy price rises seen last year were not repeated this April, but was offset partially by increases in the cost of second-hand cars and cigarettes.

‘However, prices, in general, remain substantially higher than they were this time last year, with annual food price inflation near historic highs.’

The annual rate for transport was 1.6%, the first increase in nine months, having peaked at 15.2% in June 2022.

This was largely a result of second-hand car purchases, which saw an increase of 2.7% between March and April 2023 – compared with a fall of 3.1% in the same period last year.

Partially offsetting the upward effect from second-hand cars was motor fuel, which fell by 1.3% in April, compared with a 1.9% increase last year. Average petrol and diesel prices stood at 145.8 and 162.4 pence per litre, respectively.

Ian Stewart, chief economist at Deloitte, said: ‘UK inflation is past its peak, but it is providing stickier and more embedded than expected. Rising levels of core and service sector inflation highlight the risk that domestic inflation pressures persist, even as the shock fades from high energy costs and other commodity prices.

‘With growth holding up and recession fears easing, the scene is set for another interest rate rise next month, and perhaps at least one more before the end of the year.’

The Bank of England (BoE) increased interest rates to the highest level in 15 years in May to 4.5%. It is due to announce its next decision on rates on 22 June 2023.

Paul Dales, chief UK economist at Capital Economics, said: ‘With inflation proving stickier than the Bank expected, it now seems all but certain that the Bank will raise interest rates from 4.50% to 4.75% in June and perhaps a bit further in the months after.’

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