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Stubborn inflation

21 August 2023

London June 2022, shoppers making careful choices as food inflation hit a record high. Photo Yau Ming Lau / Shutterstock.

The consumer prices index (CPI) rose by 6.8 per cent in the year to July, according to the most recent figures from the Office for National Statistics. That’s lower than the previous month – 7.8 per cent in the year to June – but prices are still rising faster than they have done for years.

Services inflation, the increase in the cost of services, which is being watched closely by the Bank of England, was 7.4 per cent in the year to July. Unlike CPI, it’s still rising – the figure for June was 7.2 per cent.


Food prices also continued to rise sharply, up 14.8 per cent in the year to July. And for many people, earlier interest rate rises are still to come through as fixed rate mortgage deals run out

These figures suggest policymakers will keep raising interest rates from their current level of 5.25 per cent set by the Bank of England on 3 August. They will say that they are forced to do so, trying to keep a lid on inflation.

“We have yet to see a turning point in the underlying rate of inflation.”

Paula Bejarano, an economist at the National Institute of Economic and Social Research, said, “Despite the welcome fall in the headline rate, we have yet to see a turning point in the underlying rate of inflation, which remains stagnant at around 7 per cent.”

However, economists said this will also encourage the Bank of England to raise interest rates again in September, for the fifteenth consecutive month.

The retail prices index increased by 9 per cent in the year to July. It is no longer an official statistic but is used to calculate increases in a range of consumer bills and linked to government borrowing costs.

Missing goal

Prime minister Rishi Sunak’s announced goal to halve the annual rate of inflation to around 5 per cent remains in doubt. As some economists and commentators have pointed out, it was not much of a goal, as the effect of sharp price increases last year pass beyond the 12-month mark. But even that headline looks unlikely as prices are going up across the board.

The official inflation target, which the Bank of England is meant to manage is just 2 per cent. There’s not a chance of hitting that soon – and certainly not while interest rate rises feed back into increased costs.