UK inflation unexpectedly fell in August to 6.7% despite rising fuel prices

UK inflation fell in August, despite a rise in average fuel prices, according to the latest update this morning from the Office for National Statistics (ONS).

The Consumer Prices Index, which tracks annual price changes, fell to 6.7% in August, down from 6.8% in July.

Significant contributors to this decrease include a slowdown in food price inflation and a decline in the cost of accommodation-related services.

Additionally, the core rate of inflation, which offers a more stable view by excluding volatile items like energy and food, also saw a decline.

This core rate dropped to 6.2%, its lowest since March, and well below the forecasted 6.8%. This sector is known for its price fluctuations, and prices decreased in August 2023.

However, it wasn’t all a decline. Motor fuel prices increased, leading to a notable upward trend in inflation rates.

source: tradingeconomics.com

Grant Fitzner, the Chief Economist at ONS, said: “The inflation rate eased slightly this month, influenced by the reduced costs of overnight stays and airfares. Moreover, food prices rose more slowly than the same time last year.”

Fitzner also pointed out opposing factors: “This slowdown was offset by higher petrol and diesel prices, especially when compared to a sharp drop around this time last year, following record highs in July 2022.”

He added, “Core inflation this month declined more than the overall rate due to lower service costs.”

Chancellor Jeremy Hunt commented: “Today’s news shows our plan to address inflation is working.”

“However, it remains too high. That’s why it’s crucial we stick to our plan to halve it, easing pressure on families and businesses. This is also the best route to sustainable growth.”

Despite these decreases, the current inflation rate is still three times higher than the UK’s target.

This persistent high rate places significant pressure on the Bank of England, leading to rumours of a potential interest rate increase soon.

Commenting on the inflation figures showing CPI inflation at 6.7%, TUC General Secretary Paul Nowak stated:

“The Conservatives’ hands-off economic strategy is pushing the UK towards recession.

Working people feel the brunt of the cost of living crisis – real wages are still lower than in 2008 after the most extended pay squeeze in two centuries.

With soaring food bills, unemployment and job insecurity are also on the rise.

The government needs a credible plan for economic growth and to improve living standards and job quality nationwide.

Despite 13 years in office, the Conservatives haven’t provided one.”

On tomorrow’s interest rate decision, Paul added:

“It’s high time to stop interest rate hikes.

Elevating interest rates to the point where the economy enters a recession will only exacerbate the current crisis, putting jobs and homes at risk.”