Surprise dip in inflation

Today’s inflation numbers are better than feared, and while at 6.7% inflation remains high and well above target, it has now fallen for three consecutive months – by Christian Leeming

The chancellor had expressed concerns of a slight rise, but the headline rate of inflation fell; measures of inflation that give a sense of how long the price shock will last, are also again falling.

This will give some support to those at the Bank of England who want to limit further interest rate rises; a further rise tomorrow to 5.5% is still likely, but that could be the last one.

In summary:

• The rate of inflation fell to 6.7% in August, from 6.8% in July
• It means overall prices are still rising – but the rate of increase is falling
• Economists had expected the figure to increase, as fuel prices rose by 5p a litre in a month
• Core inflation – which excludes energy, food, alcohol and tobacco – also fell, to 6.2%
• Chancellor Jeremy Hunt says “the plan is working” but accepts inflation is “still too high”
• The government has pledged to get the main rate inflation to 5% by the end of the year – and the longer-term target is 2%

 
Here are some comments from around the world of finance:
 
Mohsin Rashid, CEO of ZIPZERO, said: “While today’s small drop in inflation is a step in the right direction, it remains worringly high. Indeed, in the eyes of consumers, it translates to many more months of struggling to afford essentials. Crucially, cut through the data and we see that food price inflation remains at double-digit, eye-watering levels, and this is an unavoidable expense for households across the UK.

“Despite signs that cost-of-living crisis might be easing, the current level of inflation remains an albatross around the neck of consumers. It is difficult to make plans for the future when being able to feed your family is something you have to worry about, and after more than a year of cost cutting and bargain hunting, those who are struggling must be tired of waiting for normality to return.

“Consumers are long overdue a break: it is time for the government and businesses – especially retailers – to get serious about supporting families with untenable grocery bills. Supermarkets must do more to offer shoppers meaningful savings on their weekly shops, and the government needs to be more vigilant about protecting those shoppers from being taken advantage of. Things are not improving fast enough, so we must act to ensure people in need are not left behind.”

 
Lily Megson, Policy Director at My Pension Expert said: “Unexpected easing of inflation might sound optimistic on paper. But savers still face uncertainty.

“One thing is for sure, however: in the coming months, pension planning will be far from plain sailing – support is urgently required.

“To help savers successfully navigate these choppy waters, the government must work with financial providers to ensure the right support, such as access to independent financial advice and reliable educational resources, is readily available. Such tools can have a profound impact in helping savers gain a better understanding of their financial situation, empowering them to stay on track with achieving their hard-earned retirement aspirations.”

 
Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “A small and unexpected bonus, given much of the reporting beforehand was that we were in for a slight uptick in inflation. Nevertheless, today’s data illustrates how far we still have to go before cost-of-living pressures ease on UK households.

“With inflation remaining stubbornly high, the money most people have in savings is losing value in real terms. Even though interest rates have risen notably since the end of 2021, and may again tomorrow, millions are not seeing any significant benefits from this. This is because too many banks are still failing to pass better rates onto customers, particularly where easy access and current accounts are concerned.

“Given inflation is proving sticky, and the base rate could rise again as a result, it is important people consider the best ways to save their money. This means looking at different savings products – such as fixed-term accounts – and shopping around for the best deals on the market.”

 
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The latest inflation reading defied expectations – but in a good way. The rate of price rises fell by a modest 0.1 percentage point from a reading of 6.8% in July, despite a sharp rise in fuel prices. This marks the third consecutive monthly fall in prices – a psychological milestone that will make many Britons feel good about where prices are heading.

“Crucially, core inflation, the pared down measure, which excludes volatile food and energy prices, fell to 6.2%, from 6.9% in July, a faster decline than anticipated and below the headline rate. This reading matters because Bank of England policymakers monitor it to get a sense of inflation’s momentum. It means that the widely touted rise in interest rates tomorrow may well be the last increase for a while – if it happens at all.”

“Prices are heading in the right direction, but it’d be premature to declare victory over inflation. The road to rein in inflation remains an uncertain one.

“Price increases in everyday expenditure like food and energy have cooled notably over the summer months, providing some breathing room for households that have struggled to keep on top heftier bills. Even with falling inflation, economic conditions can change. It remains important to keep tabs on your spending habits, ensuing that you have enough money stashed away in a rainy-day fund. The rule of thumb is to aim to hold three to six months’ living expenses in cash.”