Inflation is down from its peak of 11.1% a year ago – but is still higher than the 2% target set by the Bank of England, which has, until recently, been putting up interest rates
Inflation fell sharply to 4.6% in the 12 months to October, its lowest level in two years after energy prices eased.
The latest Consumer Price Index (CPI) inflation figure is down from the 6.7% that was recorded in September and August. But this doesn’t mean prices are no longer rising.
Prices are still going up, but just at a slightly slower pace than before. Inflation is down from its peak of 11.1% a year ago – but is still higher than the 2% target set by the Bank of England.
It comes as energy prices have come down compared to last year, when the state subsidised Energy Price Guarantee was set at £2,500 for the typical household. Industry regulator Ofgem has now capped bills at £1,834 as wholesale prices have fallen.
However, the cost of gas and electricity is still far higher compared to years ago. Demand for energy increased after Covid and then this was exasperated by the Russian invasion of Ukraine. The war also pushed up food prices, due to rising costs for fertilisers and animal feed.
The inflation rate for food and non-alcoholic beverages dropped to 10.1% in October, down from 12.2% in September. This is down from the recent high of 19.2% in March 2023 – its highest annual rate in 45 years. Core inflation – which strips out the price of energy, food, alcohol and tobacco and is also closely watched by the Bank of England – fell from 6.1% to 5.7%.
Grant Fitzner, chief economist at the Office for National Statistics (ONS), said: “Inflation fell substantially on the month as last year’s steep rise in energy costs has been followed by a small reduction in the energy price cap this year. Food prices were little changed on the month, after rising this time last year, while hotel prices fell, both helping to push inflation to its lowest rate for two years.”
The latest inflation figure means Prime Minister Rishi Sunak is now able to say he’s met his target of halving CPI this year. Inflation was at 10.7% when he made his promise in January this year.
But Rachel Reeves MP, Labour Shadow Chancellor, said “now is not the time for Conservative ministers to be popping champagne corks and patting themselves on the back” as she responded to the figures this morning. She said: “After thirteen years of economic failure under the Conservatives, working people are worse off with higher mortgage bills, prices still rising in the shops and inflation twice as high as the Bank of England’s target.
“Rishi Sunak is too out of touch and his party is too divided to help people who are worried about the cost of living. A Labour government’s priority would be making working people better off by boosting wages, cutting people’s bills and getting the economy growing again.”
Prime Minister Rishi Sunak said: “In January I made halving inflation this year my top priority. I did that because it is, without a doubt, the best way to ease the cost of living and give families financial security. Today, we have delivered on that pledge.”
What it means for you
Inflation measures how the price of goods and services has changed over time – when it is higher, it means you can buy less for the same money compared to a year ago. For example, if something cost £1 last year and the rate of inflation on that particular product is 5%, it would cost £1.05 today.
The Office for National Statistics (ONS) releases inflation data every month. The main CPI figure is used as an average – so individual prices of some goods may be higher or lower than this.
The Bank of England has been raising interest rates to try and bring inflation down. When interest rates go up, the cost of borrowing becomes more expensive – this then means people should spend less.
If people aren’t spending as much as before, then the theory is, this should bring inflation down. But putting up interest rates has had a detrimental effect on millions of homeowners with a variable rate mortgage, who have seen their monthly payments soar in recent months.
The base rate stood at just 0.1% in December 2021 – it is now at 5.25%. Last month, the Bank of England said inflation will be above 3% by the end of 2024, before returning to the 2% target by the end of 2025, later than previously thought.