AJ Bell press comment – 14 September 2022
- UK CPI rates falls back to 9.9% down from last month’s 40 year high
- A fall in prices at the pump the main reason for the slowdown
- Food prices month on month jump biggest since 1995
Danni Hewson, AJ Bell financial analyst, comments on UK inflation numbers:
“It’s way too early to say that inflation has peaked, but the dip below double figures is psychologically important for households getting ready for what they’re expecting to be a difficult winter. Prices are still excruciatingly high but there have been falls in key goods, most notably the price of petrol. A litre of unleaded fell by 14.3 pence over the month with diesel down by 11.3 pence, making the cost of filling up slightly more manageable for families and businesses.
“And transport was the main reason for the surprise fall though recreation and culture also played a small part. But don’t be fooled into thinking the cost-of-living crisis is over. Anyone who wheeled their trolly down supermarket aisles last month will know this. Food prices rose by 13.1% over the year to August, and the jump month on month was the biggest since 1995. Milk, cheese and eggs were singled out by the office for national statistics – dietary staples people rely on and usually consider affordable options.
“New clothes and shoes needed for the new school year or a post-holiday return to the office would have cost families more, as would a cut and blow dry as appliances and products used for personal care also shot up in price.
“And whilst the headline CPI number fell, services and core inflation stubbornly tracked higher, something members of the Bank of England’s monetary policy committee will be eyeing intently. It’s a similar story that US central bankers are having to pursue and one they’re hoping won’t be the major plot line for the next year, because this is the bit that gets sticky.
“There’s no denying August’s fall is good news for UK households and there’s a real sense of expectation that the spectre of 20% inflation has been pushed firmly aside following the government’s energy price freeze announcement, but there is still a real possibility that there will be more bumps on the long road back to the two percent target. While energy prices have been capped, people will still be paying more for their gas and electricity come October and, as the nights draw in, they’ll also be using more power.
“Then there’s the big question about what else the new Chancellor might pull out of his hat when he finally delivers his emergency budget expected next week. Will there be tax cuts, how quickly will they take effect and how will they impact spending patterns?
“Oil and gas price volatility might have been the result of global events and political intervention, and the anticipation of recession might have dulled the pain, but inflation has wrought internal changes not least to wages. In real terms pay might still be looking woeful, but wages have been rising and with the labour market still pretty tight businesses are having to use it as a recruitment tool and then pass the costs on to their customers.
“And with concern mounting that the promised help with energy costs for businesses might not be ready for roll out before November, there are still huge variables to consider which may well stoke the inflationary fire once again.”
