Another fall in inflation is welcome, but inflation is still three times greater than the Bank of England’s target CPI rate of +2.0% (plus or minus 1%) and the latest decrease is only small, contrasting with the steeper decreases seen earlier in the year. Inflation in the UK is also quite high, when compared with West European peers.

One reason for the small reduction in August is that motor fuel prices have begun to rise once again, mainly because global oil prices have risen due to falling production and rising demand.

At the beginning of the year, the government pledged to reduce CPI inflation by half in 12 months. This would mean CPI falling from the January rate of +10.1% to around +5.0% by December.

This still seems possible, if only for mathematical reasons, but it assumes that no further strategic shifts take place.

With inflation declining slightly, the Bank of England Monetary Policy Committee has narrowly voted to maintain interest rates at 5.25%. This is the first time since November 2021 that the Bank of England has not increased interest rates. This news will come as some relief for consumers who have experienced significant increases in their mortgage rates in recent years. However, this does not mean that interest rates are expected to decline in the near future.

For food and drink sold at retail, prices in August were up +13.6% year-on-year, compared with +14.8% in July. Dairy, vegetables and fish products made the largest contribution to this slowdown.

Inflation in this market remains more-or-less in-line with IGD forecasts – still well above “all items” and well above income growth for most households, making food more expensive in “real terms”.

Stronger-than usual food price inflation seems likely to persist until the end of the year and IGD does not expect significant reductions in food prices in the near future.

For food and drink outside the home, prices rose +8.7% in August versus +8.9% in July.

Est contributions to all items inflation, CPI method Inflation