Another month and the rising cost of living saga continues.This time it’s slightly better news as the latest statistics from the Office for National Statistics (ONS) indicate that inflation, as measured by the Consumer Prices Index (CPI) has slowed a little. In the 12 months up to April 2023, CPI was 8.7% - down from 10.1% in the 12 months to March. While of course this doesn’t mean that the cost of living is falling, it is a step in the right direction as it means price rises in some areas are falling. However, 8.7% it is still higher that the Bank of England had expected which means that the markets are now expecting the base rate to peak at 5.3% later this year – higher than previously thought.
Of course, this figure is based on the costs of a large variety of items – some which may have even fallen in price, fuel at the petrol pump, for example. But there are other things that are still increasingly expensive; the key one being food. Food inflation overall was 19.1% - close to the 45-year high of 19.2% in the 12 months to March this year.
While CPI is still expected to fall further this year, especially as gas and electricity prices are forecast to fall this year core inflation has jumped up from 6.2% to 6.8% which suggests that there is more underlying inflationary pressure than hoped.
Core inflation is a complementary measure of consumer price inflation, which looks specifically at the underlying rate of inflation, so excludes items that are subject to erratic and seasonal price movements, or temporary supply shocks. For example, the costs of food and energy are currently seeing so much volatility and therefore can often ‘skew’ the larger headline inflation rate.
Interest in core inflation measures by the central banks typically increases during periods of high inflation volatility. However, as core inflation excludes or down weights items that are typically volatile but are important to the public, such as energy and food prices, it is not really representative for the man on the street. But core inflation measures may provide a useful complementary insight into inflation developments, and so are useful for policy makers.
The fact that core inflation has increased illustrates that it’s not just food inflation that is pushing up the cost of living. It appears that the cost of services is the problem at the moment. Services inflation is looking more persistent – increasing from 6.6% to 6.9%, which was again above the Band of England forecast.
Of course neither CPI or core inflation or any of the other measures of inflation are as important as our actual personal rate of inflation – which will vary dependent of our lifestyle,
Those who drink alcohol, for example, may find their personal inflation rate is lower than those who don’t, as alcoholic beverages inflation is up only 7.1% compared to non-alcoholic beverages which are up 16%.
And those of us who have pets (that’s a picture of my Jemima above) have seen a hike of 18.7% over the last year for items that we buy for them, and veterinary services have gone up by 12.1%. 62% of UK homes have a pet – that’s 13 million dogs and 11 million cats!
With the cost of key many items increasing faster than they have in many years, it’s important to do what you can to try and minimise its effect.
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