In the UK, inflation held steady at 3.8% in August, with a notable increase in food prices. The figure matches the July rate. The Office for National Statistics (ONS) regularly publishes inflation data and reported that food prices continued to rise for the fifth consecutive month, particularly for items like cheese, fish, and vegetables.
Food price inflation reached 5.1% in the year leading up to August, marking the highest level in 18 months. Additionally, fuel prices saw an increase, while hotel costs decreased less compared to the previous year. However, the rise in prices was balanced by airfares, which saw a slower rate of increase compared to last year.
The latest inflation report precedes the Bank of England’s upcoming interest rate decision announcement. The majority of economists anticipate that the base rate will remain at 4%, considering factors such as persistent inflation, a weakened job market, and the upcoming Autumn Budget.
The Bank of England’s inflation target stands at 2%. Interest rates have been reduced five times, bringing the base rate down to the current level of 4% from a peak of 5.25%. Grant Fitzner, the ONS chief economist, noted that various price movements offset each other in August, with airfares being a key factor in driving inflation down.
Chancellor Rachel Reeves expressed understanding for families facing financial difficulties and highlighted the government’s efforts to alleviate financial burdens through initiatives such as raising the National Living Wage and expanding benefits like free school meals. In contrast, Shadow Chancellor Sir Mel Stride criticized the ongoing high inflation levels, attributing them to policy decisions that have increased costs for everyday essentials.
Inflation reflects changes in the prices of goods and services over time, with the Consumer Price Index (CPI) being the primary measure. The ONS tracks inflation using a basket of goods and services that represent typical consumer purchases. While the main CPI figure serves as an average, individual prices may vary. A lower inflation rate indicates a slower rate of price increases, not a halt in rising prices.
The Bank of England has adjusted interest rates to control inflation, aiming to stabilize it at 2%. Interest rates influence borrowing costs, impacting consumer spending and overall demand. Higher rates can lead to increased borrowing expenses, affecting household budgets. Following multiple rate cuts, the base rate currently stands at 4%.
Inflation surged in 2021 and peaked at 11.1% in October 2022, driven by elevated energy and food prices. Energy demand rose post-Covid and was further exacerbated by the conflict in Ukraine, impacting food prices due to increased costs in production inputs. In September 2024, inflation hit a three-year low at 1.7% before beginning to rise again in October.
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