Inflation has fallen, but households are still feeling squeezed.
They are living with the impact of price rises that have hit their budgets – not just this month or even this year, but over the course of several years.
Britain’s emergence out of lockdown and the war in Ukraine triggered an inflationary crisis that saw the headline inflation rate peak at 11.1% in 2022, with food prices rising by a peak of 19.2% in October of the same year.
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Since then, inflation – the pace of price rises – has broadly come down but that doesn’t mean prices have come down, they’ve just been rising less quickly.
It means that today’s announcement that the headline rate of inflation fell from 3.8% to 3.6% might not feel like it’s shifted the dial massively on the cost of living. Prices are, after all, still rising.
And when it comes to food, prices are rising faster than wages.
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Food price inflation hit 4.9% in October. While overall inflation fell, food price inflation actually accelerated, and it’s been rising consistently (bar a dip in September) since April. That was the same month increases to employer’s national insurance contributions came into force. Supermarkets have been passing these costs on to customers.
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Stubborn and rising food price inflation will worry policymakers at the Bank of England as they weigh up whether to cut interest rates next month.
Of all the types of inflation, households are particularly sensitive to rising food prices. When households are sensitive to inflation and nervous about it rising, they are more likely to push for wage increases that could fuel inflation even higher.
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And food prices have risen considerably over the past few years. The price level for food now is 4.9% higher than it was last year but, crucially, 36.8% higher than it was four years ago.
Even if the pace of price rises now slows as the Bank of England expects – people have not forgotten this.
They are living in a new world of higher prices, which makes any claim that living standards are improving a difficult one to sell.
