Inflation dropped to 8.7% in April – but that doesn’t mean your bills are going to decrease anytime soon.
The Office for National Statistics (ONS) revealed on Wednesday that annual inflation in the consumer prices index fell below 10% for the first time since August 2022, having been at 10.1% in March.
But, food prices and bills are still very high. So what’s going on?
What is inflation?
Inflation is the measure of how prices of goods and services have changed over the last 12 months.
So a decrease in inflation does not mean bills or prices will go down, but it means the speed at which it increases slows.
The higher the inflation rate, the more the value of your money declines.
That’s why the Bank of England aims to have inflation at 2% – this means the economy grows, but at a steady rate.
If “deflation” started (meaning bills and prices actually reduced), this would be a bad thing, in terms of the wider economy.
People would hold off on spending hoping for a better deal, companies would lose money, and there could be job losses and wage cuts.
The Bank of England usually raises interest rates to try and bring down inflation, in a bid to make borrowing more expensive. This is then supposed to stop people spending as much, and stop prices climbing competitively.
So why has inflation fallen?
Inflation has finally dropped below double digits for the first time in a year, having reached its highest rate back in October – at 11.1%.
This was mainly down to electricity and gas prices dropping 1.42 percentage points.
Energy prices soaring last April is what triggered inflation to really start skyrocketing.
The ONS chief economist Grant Fitzner said the government’s move to keep the average cap on energy bills at £2,500 helped bring inflation down.
What’s going on with food prices?
Grocery bills are still rising at the second fastest pace in 45 years, with inflation for food currently at 19.2%.
That means a food shop which cost £50 in 2022 now probably costs around £60. Meat, dairy, grains, oils and sugar have all soared in price.
As ONS’s Fitzner summarised: “Prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs.”
The ONS said this was driven by the annual cost of goods like rice, flour, pasta, eggs and fruit, which all climbed at a higher rate in April compared to March.
In response to the latest ONS figures, chancellor Jeremy Hunt admitted “food prices are still rising too fast” and added: “We must stick resolutely to the plan to get inflation down.”
The Bank of England did say earlier in May that “food price inflation is likely to fall back more slowly than previously expected”, while the think tank Resolution Foundation predicted that food bills will become “the biggest threat to family finances” over the summer, replacing energy bills.
Why are food prices still so high?
Food has climbed at a very fast rate because of energy costs – farmers use a lot of electricity for their produce, which is why they were so affected.
And unfortunately, global energy prices are still high and any fall in wholesale energy prices takes a while to trickle down to consumers.
Russia’s invasion of Ukraine prompted grain, sunflower oil and fertiliser prices to climb too, as worries about supply began.
There’s also a risk that your grocery basket is actually more expensive than the current rate of food inflation – and that’s because ONS only calculates the inflation rate on the average grocery purchases, not by looking across every product in supermarkets.
Where you shop can make a huge difference to your weekly spend.
As of April 2023, Aldi was the cheapest supermarket to buy food from, with a basket of 39 items costing £69.99 on average, closely followed by Lidl, whose basket totted up to £70.64, according to price comparison data from Which?.
Meanwhile Sainsbury’s was third cheapest, followed by Asda, Tesco and Morrisons.