Inflation falls to 9.9%

Psychological impact of not having double-digit price rises doesn’t shroud the reality that inflation remains sizzling hot.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “UK inflation defied expectations by dipping ever so slightly in August to 9.9% from a 40-year high of 10.1% in July because of fuel prices falling from record highs.

“The psychological impact of not having double-digit price rises doesn’t shroud the reality that inflation remains sizzling hot, running at five times the Bank of England target.

“The fall in price of motor fuels made the largest downward contribution - good news for drivers. This is principally a result of petrol prices falling by 14.3 pence per litre between July and August, taking the annual inflation rate for motor fuels from 43.7% to 32.1%.

“But we are still paying more for the food we put on our tables. Food and non- alcoholic beverages made the largest upward contribution and is running at its highest rate since the financial crisis - rising by 13.1% in the 12 months to August 2022, up from 12.7% in July. The largest upward effect came from the increase in the price of milk, cheese and eggs. This type of inflation can be even stickier because consumers are resigned to paying it as they form part of essential spending.

“The escalating cost of energy has been the principal driver of inflation since following the onset of the devastating war in Ukraine. The Energy Bill Support Scheme announced earlier this year, which provides £400 non-repayable discount to eligible households to help with their energy bills, will not affect consumer price inflation, according to ONS statisticians. But the recently announced freeze in the energy bills at an average of £2,500 a year could help apply the brakes on runaway inflation. The government predicts that the measure could take four or five percentage points off inflation, which could (hopefully) render predictions of inflation reaching beyond 20% out of date.

“But energy bills will still rise as the new price cap which comes into play in October is still 27% higher than the current of £1,971 for a typical household.

“Inflation might not be biting as hard, and the government’s unprecedented multi-billion-pound cost of living support package will help alleviate the squeeze on household budget - but consumers will still need to strap in for a winter discontent for personal finances.  

“Rising prices and higher spend on energy eats into the amount many people have to save for everything else, whether that’s other living expenses, emergencies, leisure or saving for their future. It is important to remember that the headline inflation figure can dramatically differ from your own personal inflation number. Any savings you can make now will help you build up reserves for winter when you’ll really need it most. But that’s easier said than done in a cost-of-living crisis.”