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Consumer Prices Index (CPI) inflation hit 7.9 percent in the 12 months to June 2023, down from 8.7 percent in May, however many people still face an increased cost of living.
Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year.
The decrease in inflation was driven by falling prices for motor fuel. Food prices also dropped slightly but they still remain high meaning people are still spending more in their weekly shop.
And core inflation finally dropped from its 30-year high of 7.1 percent to 6.9 percent . Yet people are still facing rises on their weekly shops. Here, Express.co.uk explains why.
What is core inflation?
Core inflation is the change in the costs of goods and services, but it does not include those from the food and energy sectors.
It shows us the rate of price rises for things people consume on a regular basis, but which could cut back on if budgets are being squeezed e.g. cinema tickets to books and haircuts.
Core inflation has now been above six percent for 10 out of the last 12 months.
The figures show that the underlying cost-of-living crisis is not going away at the moment. Whether it’s due to wage increases maintaining high spending levels or staff shortages driving production prices up, inflation is not falling away to the targeted two percent.
The Bank of England closely follows the core rate when it considers how to set interest rates.
The latest inflation figures mean it is almost certain the UK’s central bank will opt to hike interest rates again next month – the main question being by how much.
Inflation is falling but prices are rising, what does this mean?
Even though there has been a drop in the inflation rate, prices are still rising at a fairly rapid rate and people will likely feel the pinch.
UK inflation remains the highest among the G7 group of advanced economies. The Consumer Price Index (CPI) rate of inflation for June 2023 has dropped from 8.7 percent to 7.9 percent.
Inflation has eased by more than expected to its lowest level for 15 months in a sign that price rises may finally be slowing down.
Despite price rises slowing down, they are still high compared to a year ago, and are are simply rising at a slower rate than they have been.
Are your costs rising even faster?
Everyone’s cost of living will be rising depending on what they buy so may not match up to the 7.9 percent that has been announced.
For example, if someone is buying a lot of unusual or niche items, or they have atypical tastes, they might find the cost of their own bag of shopping is going up more quickly – or more slowly.
Food inflation is currently at 17.3 percent, much higher than the average rate, so people who spend a greater proportion of their outgoings on food will find their personal inflation rate is higher than the 7.9 percent headline figure.
The ONS says energy, food, and drink accounts for around 15 percent of lower-income households’ spending, compared to 10 percent for high-income groups.
Will prices ever fall?
The cost-of-living crisis will be over once prices stabilise and wages have risen enough to match, and that is unlikely to happen for some time yet.
Experts predict it will be at least another few years, possibly lasting until 2028.
The Office for Budget Responsibility warned of a big drop in living standards over the next two years.
Once inflation is taken into account, household disposable income is set to fall by 5.7 percent between 2022 and 2024. That is the largest two-year fall since records began in the mid-1950s.
Responding to new monthly inflation figures, Alfie Stirling, chief economist at the Joseph Rowntree Foundation, said: “A larger than expected fall in headline price rises in June is certainly welcome but it’s also important not to overinterpret monthly swings in inflation in either direction.
“We must recognise we are still in the belly of this crisis. For the 5.7 million low-income families in this country already forced to eat less or skip meals, inflation at close to eight percent and food inflation above 17 percent will come as precious little comfort overall.”
The Bank of England is continually working on decreasing the inflation figure to help ease the cost of living. They previously predicted that inflation would fall from the middle of this year and be around five percent by the end of the year, continuing to fall towards a target of two percent after that.
In a bid to hit the two percent target, they may raise interest rates to delay spending. According to the experts at the Resolution Foundation, the cost-of-living crisis should ease in 2024. But it won’t fully be over until wages catch up.
