No time for celebration despite unexpected ease in inflation
Annualised inflation (as measured by CPI) slowed marginally in August to 9.9%, down from 10.1% in July. That reflects a moderation in the price of motor fuels, which were up 32.1% year-on-year in August compared to 43.7% in July. That was partially offset by higher food electricity and gas costs, up 13.1%, 54.0% and 95.7% respectively.
Nicholas Hyett, Investment Analyst, Wealth Club said: “Inflation moderated slightly in August, but it is far too early to be celebrating victory in the war against rising prices.
“Critical everyday items like food and home heating continue to get more expensive, sucking disposable cash out of consumer wallets. As well as making everyone’s lives more miserable that has repercussions for businesses across the UK’s service economy. When times are tough, belts are tightened and people focus on the essentials – restaurant trips, new cars and holidays all start to get delayed, putting businesses under pressure and jobs at risk.
“The shape of inflation is also a concern. Inflation driven by food, electricity and gas will likely hit the poorest hardest – since they spend a far greater proportion of their income on essential goods than the wealthy. Government plans to cap energy prices will help to some degree, but it may be that more support is needed over the winter if prices accelerate away once again. Concern about the state of the UK economy and pace of government spending is already weighing on the price of sterling, and acting as a key driver of inflation. Further demands on the public purse would make things worse but may be unavoidable.
“Today’s moderation in inflation is welcome, but it may be just a short calm before the storm resumes.”