‘Light at the end of the tunnel’ as inflation falls again

The fall in inflation in July has offered some respite from the cost-of-living crisis, but experts have warned we are not out of the woods yet.

The Consumer Prices Index (CPI) rose by 6.8% in the 12 months to July 2023, down from 7.9% in June, the latest Office for National Statistics figures have revealed.

Statistics show CPI fell by 0.4% in July 2023, compared with a rise of 0.6% in July 2022.

Meanwhile, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.4% in the 12 months to July 2023, down from 7.3% in June.

Commenting on the figures, Interactive Investor senior personal finance analyst Myron Jobson said: “Inflation continues to moderate and head in the right direction which is a welcome sign for those who have struggled to maintain financial buoyancy because of high costs. But it remains far too high for comfort.

“However, the latest slowdown in inflation represents the kind of progress needed to get inflation down to the more sustainable 2% target.

“The easing of inflation was led by a fall in energy costs which fed through to households at the start of July when the new lower energy price cap came into effect.

“Businesses have also benefited from a reduced cost burden from lower gas and electricity prices which should continue feed into lower core inflation – which remained stuck in the mud in July, unchanged from June.”

IG Group chief market analyst Chris Beauchamp warned the Bank of England can allow itself “only a moderate period of rejoicing”.

“Headline CPI might be down, but the core figure shows that price growth remains sticky. Good news on goods deflation contrasts with the persistence of services inflation, yet another sign that higher prices are here to stay,” he said.

Derrick Dunne – chief executive of YOU Asset Management – added: “CPI inflation plummeted to 6.8% in the 12 months to July, thanks in no small part to the energy price cap cut.

“While this particular deflationary factor might be a one-off, the second consecutive fall in inflation indeed offers hope to those who have been hardest hit by cost-of-living pressures.

“The big problem now is that wage growth is rising faster than inflation for the first time in over a year, making the possibility of a wage-price spiral look increasingly real.

“Interestingly, hotels and air travel have been the largest upward drivers in July, showing that even a cost-of-living crisis isn’t getting into the way of a summer holiday season.

“So far in 2023, the Bank of England has been trying to engineer positive outcomes as the economic support introduced to soften the effects of the pandemic took inflation and wage growth ever higher.

“As we head into the second half of 2023, markets will be heavily focused on whether the rate hiking cycle is bringing the Bank anywhere close to hitting its 2% target, as well as the potential longer-term impact on the economy.”