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Inflation returns to 2% target for first time in nearly three years

19 Jun 2024 3 minute read
Photo Aaron Chown PA Images

Inflation has returned to the 2% target for the first time in almost three years in what comes at a critical time, just weeks before the nation heads to the polls.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation fell to 2% in May, down from 2.3% in April.

It follows nearly three years of above-target inflation, with CPI last recorded at 2% in July 2021, before shooting higher amid the cost-of-living crisis.

The latest inflation figures mean that prices are still rising across the country, but at a much slower rate than in recent years when households and businesses were being squeezed during the peak of the cost crisis.

The data will be watched closely ahead of the Bank of England’s next interest rate decision on Thursday, but policymakers are widely expected to hold fire on any cuts until after the General Election on July 4.

It comes less than three weeks before polling day and as the political parties home in on economic pledges in their manifestos.

Chaos

The fall in inflation is likely to be seized on by Rishi Sunak’s Conservatives as a sign that their economic plan is working.

But shadow chancellor Rachel Reeves said: “After 14 years of economic chaos under the Conservatives, working people are worse off.

“Prices have risen in the shops, mortgage bills are higher and taxes are at a 70-year high.”

Liberal Democrat Treasury spokeswoman Sarah Olney said: “The hard truth is that millions of people won’t be feeling any better off today.”

Experts said that, despite the milestone for inflation, there is still work to do in bringing down prices throughout the economy.

The Bank is keeping a watchful eye on inflation in the services sector, which fell from 5.9% to 5.7% in May, but still remains stubbornly high.

It is one of the factors that has been partly responsible for staying the Bank’s hand in bringing rates down from their 16-year high of 5.25%.

Jake Finney, economist at PwC, warned it is “not ‘job done’ yet”.

Rise

He said: “If prices continue to rise at the same month-on-month rate as they did this month (0.3%), then headline inflation will be back over the 2% target next month (at 2.1%).”

Suren Thiru, economics director at Institute of Chartered Accountants in England and Wales (ICAEW), said: “Despite this landmark fall in inflation, concerns over both underlying price pressures and changing policy in the run-up to a General Election means a June interest rate cut is almost certainly off the table.”

The ONS said food inflation fell back to 1.6% – the lowest since October 2021 – which was the biggest factor in pulling the overall level of CPI inflation lower.

At one stage food inflation reached nearly 20% – at 19.6% – in March last year, but has been steadily easing back since then.

However, last month saw prices rise at the petrol pumps, while air fares also lifted, according to the ONS.

The average price of petrol rose by 0.7p per litre between April and May to stand at 148.8p per litre.


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Linda Jones
Linda Jones
25 days ago

Yes but so much remains overly expensive from housing to food to transport. Making ends meet for the many is a nightmare.

Neil Anderson
Neil Anderson
25 days ago

It is important to note that the fall in inflation had nothing to do with anything the Bank of England and Treasury did or failed to do. That includes reducing the national debt. According to Richard Murphy, professor of accounting at Sheffield University (https://www.taxresearch.org.uk/Blog/), data over 800y shows that inflation always does fall. That most of it arose from external sources (Ukraine, with Gaza still to come) did not stop ‘entrepreneurs’ and rentiers from pushing their prices up while the Tory Government looked the other way. High interest rates are also inflationary (ask any mortgage holder). The introduction of Modern… Read more »

Nigel's pet toad
Nigel's pet toad
25 days ago
Reply to  Neil Anderson

They may not have solved it but they contributed to it:

“Former Bank of England Governor Mervyn King said on Friday that central banks including the BoE are to blame for the current surge in inflation to its highest in 40 years, after doing too much quantitative easing during the pandemic.”

– Reuters, May 20th 2022.

Neil Anderson
Neil Anderson
25 days ago

Yes, you’re right NPT. Otherwise more nonsense from Mervyn King, I’m afraid. There were some who made a lot of money during Covid. Were you one? Most found their income reduced and suffered much financial hardship to add to the isolation and illness. I suggest that there was not nearly enough QE! QE, a PR version of MMT, has been used before. MMT paid for WW2. I wonder if Mervyn King thought that there was too much MMT used then? Note that the ‘national debt’ in the post-war period rose to 250% of the GDP. MMT will pay for climate… Read more »

Nigel's pet toad
Nigel's pet toad
25 days ago
Reply to  Neil Anderson

Printing money at a time when a shortage of goods and services not money supply was the problem is obviously going to push up prices. Switzerland and Japan managed to avoid high inflation. The BoE made a similar “mistake” by keeping interest rates low for too long after the financial crash. Cheap money lets people make higher offers than they’d normally afford for the property they want, artificially inflating house prices. Presumably they also benefited personally from house price inflation. The BoE needs to be abolished.

Neil Anderson
Neil Anderson
25 days ago

It’s clear, NPT, that we differ fundamentally about the approach to the economy. I favour active management (say, in the ‘property market’) by the government. Anything less seems like dereliction of duty – as we’ve had with years of the neo-liberal approach you appear to support – that has allowed hungry children, for example. There is much to change that the supposed Change Party probably won’t touch. The flimsy notion of the independence of the BoE, the division of monetary and fiscal policy and much more. Abolition of the BoE sounds like a superficially attractive policy that might appeal to… Read more »

hdavies15
hdavies15
25 days ago

It ain’t over yet. Key components of any household spend will get overpriced at times, then wait 12 months and the inflation on that component will be nearly zero but we will have been ripped for a big permanent price increase often without a commensurate increase in incomes. So who do they think they are kidding ?

Valerie Matthews
Valerie Matthews
25 days ago

Utter Rubbish! down to 2% where? and how? In whose World is this happening?

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