๐ฎ๐ท Inflation in Britain Eases, But Still Holding Strong Eh!
In April, ๐ the inflation rate in Britain dropped to its lowest level in over a year as the effects of last year’s surge in energy prices began to ease up.
Consumer prices in Britain rose 8.7 percent from a year earlier, marking the slowest increase since March 2022, according to the Office for National Statistics. ๐ This is the first time since last summer that the country’s inflation rate has not been in the double digits. For over a year, rising prices in Britain have far outpaced wage growth and have led to a deep cost-of-living crisis. ๐ธ๐
Core inflation, which excludes energy and food prices and serves as an indicator of how deeply inflation is embedded in the domestic economy, rose in April to 6.8 percent, reaching its highest level in 31 years, the statistics agency reported. This increase was primarily driven by prices in the services sector. ๐ฅ๐
Why It Matters: Food prices remain the primary concern for inflation. ๐ ๐ฅฉ๐
The slowdown in inflation was less than what the Bank of England had forecasted, as they had projected 8.4 percent for April. The inflation data has consistently turned out to be higher than the bank’s expectations, intensifying the challenge faced by policymakers who are tasked with lowering inflation to the 2 percent target. Since December 2021, the central bank has raised interest rates from near zero to 4.5 percent, making loans, especially mortgages, more expensive. ๐ฐ๐ฆ
With energy prices falling, food prices have become the largest contributor to inflation. In April, food prices rose by 19 percent from a year earlier, slightly lower than the 19.1 percent increase in March, which was the fastest pace since 1977. ๐๐ฝ๏ธ
Food accounted for more than 2 percentage points of the overall inflation rate. The prices of bread, fish, and dairy products were among those that continued to increase last month. ๐ฅ๐๐ฅ
The statistics agency stated on Tuesday that food inflation in Britain is among the highest among advanced economies. The ongoing war in Ukraine and extreme weather conditions have contributed to the rise in food prices, which have been further exacerbated by labor shortages. โ๏ธ๐ช๏ธ๐
On Tuesday, Britain’s chancellor of the Exchequer, Jeremy Hunt, met with food producers and Britain’s competition regulator to discuss the rising cost of food. However, no plans to lower costs were announced. ๐ค๐ฝ๏ธโ
Background: Inflation rate still higher than in the U.S. and Europe. ๐๐
Britain’s inflation rate peaked at 11.1 percent in October, marking the fastest pace of price increases since 1981. This surge was largely driven by the energy price shock that affected Europe. Similar to the United States, Britain’s labor market was slow to recover from the pandemic, which forced businesses to raise wages in order to retain workers, adding to the inflationary pressures. โฐ๐๐ผ
Economists say that one of the reasons Britain’s inflation rate has been slower to decline compared to the United States (where it is 4.9 percent) and the eurozone (7 percent) is due to the way energy prices are factored into the calculation. Britain’s energy regulator sets a cap on the prices households pay for energy, which is reset every quarter. When energy prices started rising over a year ago, this system temporarily shielded households from the price surge. Now that wholesale energy prices have fallen, it is taking longer for household bills to reflect that change. โก๐ ๐ก
Overall, British households and businesses have shown resilience in the face of high prices. The International Monetary Fund stated on Tuesday that it no longer expects Britain to experience a recession this year, a view that aligns with recent assessments made by the Bank of England. However, the improved economic outlook could contribute to more persistent inflationary pressures. ๐๐ญ๐ช
What’s Next: A continued decline in inflation is expected, but the speed of that decline is uncertain. ๐โ
The decline in April serves as the strongest signal that inflation in Britain has taken a turn. If energy prices continue to drop, it is expected that inflation will keep falling throughout the year. However, the pace of this decline remains uncertain. Food prices are anticipated to rise at a slower rate, but economists are unsure when this trend will take hold. The presence of inflation in the services sector indicates that the Bank of England’s campaign to restrain inflation will persist. The government’s target of halving inflation this year, aiming for a 5 percent inflation rate by the end of December, is at risk of becoming unattainable. โณ๐ฃ๏ธ๐
NOW IN ENGLISH
๐ฎ๐ท Inflation in Britain Eases, But Still Holding Strong Eh!
In April, the inflation rate in Britain dropped to its lowest level in over a year as the effects of last year’s surge in energy prices began to ease up.
Consumer prices in Britain rose 8.7 percent from a year earlier, marking the slowest increase since March 2022, according to the Office for National Statistics. This is the first time since last summer that the country’s inflation rate has not been in the double digits. For over a year, rising prices in Britain have far outpaced wage growth and have led to a deep cost-of-living crisis. ๐ธ๐
Core inflation, which excludes energy and food prices and serves as an indicator of how deeply inflation is embedded in the domestic economy, rose in April to 6.8 percent, reaching its highest level in 31 years, the statistics agency reported. This increase was primarily driven by prices in the services sector. ๐ฅ๐
Why It Matters: Food prices remain the primary concern for inflation. ๐ ๐ฅฉ๐
The slowdown in inflation was less than what the Bank of England had forecasted, as they had projected 8.4 percent for April. The inflation data has consistently turned out to be higher than the bank’s expectations, intensifying the challenge faced by policymakers who are tasked with lowering inflation to the 2 percent target. Since December 2021, the central bank has raised interest rates from near zero to 4.5 percent, making loans, especially mortgages, more expensive. ๐ฐ๐ฆ
With energy prices falling, food prices have become the largest contributor to inflation. In April, food prices rose by 19 percent from a year earlier, slightly lower than the 19.1 percent increase in March, which was the fastest pace since 1977. ๐๐ฝ๏ธ
Food accounted for more than 2 percentage points of the overall inflation rate. The prices of bread, fish, and dairy products were among those that continued to increase last month. ๐ฅ๐๐ฅ
The statistics agency stated on Tuesday that food inflation in Britain is among the highest among advanced economies. The ongoing war in Ukraine and extreme weather conditions have contributed to the rise in food prices, which have been further exacerbated by labor shortages. โ๏ธ๐ช๏ธ๐
On Tuesday, Britain’s chancellor of the Exchequer, Jeremy Hunt, met with food producers and Britain’s competition regulator to discuss the rising cost of food. However, no plans to lower costs were announced. ๐ค๐ฝ๏ธโ
Background: Inflation rate still higher than in the U.S. and Europe. ๐๐
Britain’s inflation rate peaked at 11.1 percent in October, marking the fastest pace of price increases since 1981. This surge was largely driven by the energy price shock that affected Europe. Similar to the United States, Britain’s labor market was slow to recover from the pandemic, which forced businesses to raise wages in order to retain workers, adding to the inflationary pressures. โฐ๐๐ผ
Economists say that one of the reasons Britain’s inflation rate has been slower to decline compared to the United States (where it is 4.9 percent) and the eurozone (7 percent) is due to the way energy prices are factored into the calculation. Britain’s energy regulator sets a cap on the prices households pay for energy, which is reset every quarter. When energy prices started rising over a year ago, this system temporarily shielded households from the price surge. Now that wholesale energy prices have fallen, it is taking longer for household bills to reflect that change. โก๐ ๐ก
Overall, British households and businesses have shown resilience in the face of high prices. The International Monetary Fund stated on Tuesday that it no longer expects Britain to experience a recession this year, a view that aligns with recent assessments made by the Bank of England. However, the improved economic outlook could contribute to more persistent inflationary pressures. ๐๐ญ๐ช
What’s Next: A continued decline in inflation is expected, but the speed of that decline is uncertain. ๐โ
The decline in April serves as the strongest signal that inflation in Britain has taken a turn. If energy prices continue to drop, it is expected that inflation will keep falling throughout the year. However, the pace of this decline remains uncertain. Food prices are anticipated to rise at a slower rate, but economists are unsure when this trend will take hold. The presence of inflation in the services sector indicates that the Bank of England’s campaign to restrain inflation will persist. The government’s target of halving inflation this year, aiming for a 5 percent inflation rate by the end of December, is at risk of becoming unattainable. โณ๐ฃ๏ธ๐
