When will we feel the impact of falling inflation?

Food prices remain close to a record high despite drop in the top-line inflation rate

Woman looking at bills
Bills have ballooned but there are signs that price rises will slow in the coming months
(Image credit: coldsnowstorm/ Getty images)

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Inflation has dropped from 10.10% to 8.7%, according to figures from the Office for National Statistics, taking the headline rate into single digits for the first time since last August.

April marked “the sharpest fall in inflation since the cost of living crisis began”, but food prices are yet to follow suit and have continued to rise “at the fastest pace in 45 years”, said The Guardian.

Inflation peaked at 11.1.% in October, causing misery for millions of households across the country, but the sharp fall in inflation, otherwise largely welcome news, has been “offset by the rising cost of a weekly shop as food and non-alcoholic drink” said the paper, as “prices soared by 19% in the 12 months to April”.

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What does inflation going down mean for consumers?

Unfortunately, it doesn’t mean goods and services will become less expensive. It means that the prices of those goods and services are starting to increase at a slower rate.

The top line of inflation is mainly being driven down due to energy prices, which “started soaring just over a year ago, when the price cap determining what the typical home pays for gas and electricity shot up to £1,971 from £1,277”, said the i news site. Since then, they have increased – but at a slower rate – meaning overall inflation has dropped.

But, as the i news site noted, the core consumer price index (CPI) – which excludes energy, food, alcohol and tobacco – has risen by 6.8% in the 12 months to April 2023 up from 6.2% in March, “which is the highest rate since March 1992”.

Chancellor Jeremy Hunt told the BBC earlier today that while the sharp fall in the headline rate was “welcome news”, there were “things underneath those numbers which show that this battle is far from over”. Despite falling, the headline rate was also higher than predicted.

Will food prices fall?

The overall rate of inflation may have fallen – but the price of food is likely to remain high for some time.

The rate at which food and grocery prices rose “slowed marginally” in the year to April, said the BBC, but at 19.1% it is “close to record highs”. But the cost of some staples have fallen slightly, such as the price of bread, cereal, fish, milk and eggs, according to the ONS.

Food prices have surged in the last year after soaring energy prices – partly to do with the war in Ukraine – drove up the cost of production and disrupted supply chains. Now, wholesale prices are falling but retailers have argued that there is a “time lag” before lower costs feed through to our supermarket shelves, explained the BBC.

Will interest rates rise?

According to The Guardian, although inflation is falling, the figures are “likely to reinforce expectations” for the Bank of England to raise the interest rate further in June – a tactic the BoE believes is the “best way we have” to tackle rising inflation.

The rate of inflation for April is still four times higher than the BoE’s target of 2%.

If the central bank chooses to raise interest rates, it would be the 13th consecutive rise since December 2021.

Why the inflation rate matters

As inflation rises, the purchasing power of money falls. If you have £100, said Forbes, and the inflation rate over the next year is 10%, the face value of your money would still be £100. “But thanks to inflation, after 12 months you’d need to spend £110 to buy what £100 would have bought you a year earlier.”

Inflation “in moderation” is a sign of a healthy economy, said Moneyfacts. It “encourages people to spend their money, which in turn grows the economy and decreases unemployment”, and combats the effects of deflation, which is often worse for an economy.

But if inflation becomes too high, “consumers will become poorer, limiting their disposable income and spending on non-essential items like holidays and nights out”, the comparison website explained.

High inflation can also be a “disaster for your savings”, said The Money Edit. To grow your savings in real terms, you need to find a return above the rate of inflation, and “these simply don’t exist right now”.

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