The rate of inflation slowed in April despite concerns about the impact of the Iran war and oil shortages on household bills, but this dip may be only temporary.
Data from the Office for National Statistics (ONS) shows the Consumer Prices Index (CPI) was 2.8% in April, down from 3.3% in March. The lower energy price cap introduced in April “helped soften the sharp rise in fuel costs since the start of the Iran war”, said The Guardian.
But the fall is expected to be “short-lived”, said CNBC, as the “economic implications of the Iran war materialise”.
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What is inflation?
Inflation measures the changing price of goods and services. It is based on the CPI, which tracks a basket of goods, such as food, energy bills and transport costs, monitored by the ONS.
To see inflation in action, said MoneyHelper, “think about what you could buy with £1 over the past few decades”. A higher inflation rate means you can buy “less this year than you could last year for the same amount of money”.
At 2.8%, the inflation figure is above the Bank of England’s target of 2%, but is “well below” the 11.1% figure reached in October 2022, said the BBC.
Will inflation ever come down?
The latest drop in the rate of inflation was “more substantial than anticipated”, said The Independent, but the ongoing Middle East conflict “could soon reverse this progress”.
The reduction in the energy price cap in April was a “key driver” in the latest figures, said Financial Reporter, but “rising global energy costs” are likely to feed through into a higher Ofgem price cap from 1 July, which would push inflation higher.
It comes as Iran’s continued closure of the Strait of Hormuz means “more than half” of the normal oil supply is not getting through. Unless “something changes”, said Kiplinger, this means gas, fuel and food prices will “start rising in the future”. This can push up the rate of inflation.
Oil markets have been “heavily disrupted due to the Iran war”, said MoneyWeek. The commodity is used in the manufacturing of “a significant portion” of everyday items such as plastic, crayons, shoes, backpacks, iPhones, pillows and much more.
This “simple answer” to the question of whether inflation will come down, said Big Issue, is “probably never” and “almost certainly not by very much”.
Inflation still means prices are rising. The rate would have to be negative for prices to actually fall – known as deflation. This can “actually be a quite a bad thing”, as it means the economy is stagnant. In the past, this has been used as “political cover for austerity”.
The Bank of England has the power to “lift or lower interest rates”, said the BBC, to change how households and businesses use their money and control inflation.
But many of the “current pressures” on inflation are coming from outside the UK, meaning the cost of living is “widely expected to rise from here”.