Britain’s inflation rate dropped its lowest level in more than a year in the month of April 2023 as the effects of the surge in energy prices in 2022 started to ease.
Britain’s Office for National Statistics, on Wednesday, reported that consumer prices in Britain rose 8.7 per cent from a year earlier, the slowest pace since March 2022.
It is the first time since a year that the country’s inflation rate has not been in the double digits. For more than a year, rising prices in Britain have far outpaced wage growth and forged a deep cost-of-living crisis.
According to the statistics, core inflation, which strips out energy and food prices and serves as an indicator for how deeply inflation is embedded in the domestic economy, rose in April to 6.8 percent, its highest level in 31 years, which is further pushed higher by prices in the services sector.
The slowdown in inflation was less than the Bank of England’s forecast, which had projected 8.4 percent for April. The inflation data has repeatedly turned out higher than the bank expects, intensifying the challenge facing policymakers tasked with lowering inflation to the 2 percent target. Since December 2021, the central bank has raised rates to 4.5 percent from near zero, making loans, especially mortgages, more expensive.
With energy prices falling, food prices have become the largest contributor to inflation. In April, food prices rose 19 percent from a year earlier, just lower than 19.1 percent in March, which was about the fastest pace since 1977.
Food accounted for more than 2 percentage points of the overall rate. The price of bread, fish and dairy products were among those that continued to increase last month.
Food inflation in Britain is among the highest in advanced economies, the statistics agency said on Tuesday. The war in Ukraine and extreme weather have pushed up food prices, which have been exacerbated by labor shortages.
Britain’s inflation rate peaked at 11.1 percent in October, the fastest pace of price rises since 1981, driven largely by the energy price shock that hit Europe. Like the United States, Britain’s labor market was slow to rebound from the pandemic, forcing businesses to push up wages to retain workers, adding another inflationary pressure.
Economists have said that one of the reasons Britain’s inflation rate has been slower to decline than in the United States (where it is 4.9 percent) and the eurozone (7 percent), is because of the way energy prices are factored into the calculation.
On the whole, British households and businesses have shown resilience to high prices. On Tuesday, the International Monetary Fund said it no longer expected Britain to experience a recession this year, an assessment the Bank of England had also made recently.
But the stronger outlook could make inflationary pressures more persistent.
The New York Times reported that, “Even as headline inflation is coming down,” Andrew Bailey, the governor of the central bank, told lawmakers earlier this month, policymakers are paying “particular attention to indicators of inflation persistence.”
The decline in April is the strongest signal that inflation in Britain has turned a corner. If energy prices continue to drop, then inflation is expected to keep falling this year.
But the speed of that decline is uncertain. Food prices are expected to rise more slowly, but economists aren’t sure when that will take hold. Inflation in the services sector means the Bank of England’s campaign to restrain inflation will continue. The government’s target of halving inflation this year, which would mean a 5 percent inflation rate at the end of the year, is at risk of falling out of reach.
