Why inflation falling won’t make huge difference to you – and what caused the drop | Personal Finance | Finance


The Consumer Price Index (CPI) rate has dipped to 6.8 percent in the year to July 2023 due to a drop in energy prices and a slowdown in food price increases, ONS data reveals.

The average price for each unit of electricity was reduced to 30p per unit while gas prices fell to 8p per unit from the start of July. This saw the average annual energy bill for a household drop to £2,074 from the capped rate of £2,500.

Gas prices also declined by more than 25 percent in July against the previous month due to the cap change, while electricity prices saw an 8.6 percent decrease.

Soaring food price inflation also slowed down last month, which contributed to the reduction in the overall inflation rate. Food prices increased by 14.9 percent in July against the same month last year, easing back from 17.3 percent growth for June.

While this reflects the UK’s lowest rate seen since February 2022, the pace of inflation still remains high meaning prices are still increasing – just at a slower rate than the month prior.

What does the inflation rate mean for money?

High inflation rates mean higher product prices and a fall in the purchasing power of money. When general prices rise during inflation but the value of money stays the same, it means households can buy fewer goods for the same monetary sum.

As CPI rates report a 6.8 percent inflation rate in the UK, this indicates goods now cost 6.8 percent more than they did last year.

While the prices of certain commodities have fallen, significant increases are still noticeable across many products and ingredients, including fertiliser, which is being passed down by farmers to retailers.

According to the ONS, the price increases of products such as sugar, yoghurt and fish also accelerated last month.

Most Britons benefited from lower energy bills in July following a lower price cap of £2,074, down from the Government’s Energy Price Guarantee of £2,500. However, this still remains higher than the same month last year when energy had been capped at an average of £1,971 per household.

Giles Coghlan, chief market analyst consulting for HYCM, said: “In theory, rising GDP and falling inflation figures should be good news for the UK economy – in reality, however, other indicators show that the UK’s inflation fever shows no signs of breaking soon.

“Although the headline rate of inflation has declined to 6.8 percent, the latest data suggests that strong wage growth is likely to keep inflation elevated – not to mention more persistent – in the coming months.

“The Chancellor has already forewarned that wage growth and an uptick in clothing prices could see inflation rebounding again in August, tempering any optimism that today’s release may produce.”

The Government has set a new inflation target to reduce it to around 5.3 percent by the end of 2023. Chancellor Jeremy Hunt said on Wednesday that the easing of inflation shows “the decisive action we’ve taken to tackle inflation is working” but “we’re not at the finish line”.

However, experts have warned that, while core CPI inflation, which reflects the change in prices of goods and services (but discludes those from the food and energy sectors), remains unchanged at 6.9 percent, this pledge is in “jeopardy”, as it could indicate persistent inflation.

Heidi Karjalainen, a research economist at the Institute for Fiscal Studies (IFS) said: “The stubbornly high rate of price inflation for goods and services other than food and energy has put the target in jeopardy.”

“With only four months to go, it no longer seems at all clear that inflation at the end of the year will have fallen by enough to achieve it.”


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