Reprieve! The British consumer has received a stay of execution. Figures just released by the Office for National Statistics (ONS) show inflation last month fell to 2.8 per cent – down from 3.3 per cent in March and by more than most economists had forecast. But don’t bother reading the ‘corner has been turned’ press release that the government will issue later, because today’s improvement is sadly not about to become a trend.
Rachel Reeves has played some part in these figures: by removing various energy levies from household bills and freezing some other regulated costs. That’s meant price rises in April were not as bad as they might otherwise have been. But the real reason the figures have come down is because of how bad Awful April was last year. At the start of the new tax year, regulated prices, inflation-linked bills and other annual price increases all kick in at once. This year they were just less extreme than in 2025 and so the net effect is to bring down the headline rate of CPI.
The way the ONS statisticians collect inflation data played a role too. Air fares, for example, fell by 3.3 per cent last month compared with a jump of nearly 28 per cent in April 2025. The reason: last year’s data was collected in the run-up to Easter while this year’s ‘index day’ happened after Easter, meaning no flights ‘departed in the holiday period’.
But look at any forecast, be it from the Bank of England, the City of London or an international economics organisation, and they all agree on the direction of travel for inflation overall: price rises are about to speed up.
Things are not going to get as bad as they did in 2022 when inflation hit 11 per cent. Our economy is just not strong enough to sustain those levels of price rises. Wages are not growing fast enough and the Bank is, sensibly, not injecting cash into the economy that would support people paying higher prices. But inflation will get worse than today’s figures suggest.
The damage already done to energy infrastructure in the Middle East means oil and gas prices will remain elevated through the summer. The Chancellor will set out details of her energy support plans in parliament tomorrow but she has no choice but to make any policy intervention a targeted one. That means that for most households energy costs will spike again. Increases in the cost of fertiliser and plastics – a consequence of the oil price spike – mean food inflation will tick up again too.
In fact, despite today’s falling inflation for consumers, we’re already seeing a worrying surge in production costs. The ‘input price index’ jumped 7.7 per cent, which was the highest PPI rise since February 2023, thanks to a 75 per cent increase in crude oil costs for producers.
Meanwhile, as the consultancy firm Oxford Economics told its clients yesterday, these cost pressures are hitting at a time when conditions in the job market suggest workers will not be able to win the pay rises that could sustain those rising prices. With unemployment shooting up and vacancies at a five-year low, the cards are not in employees’ hands. At the same time, Reeves’s fiscal drag, meaning the portion of wages that goes straight to HMRC, will limit take-home pay.
So the fact that households and businesses do not have additional spending power – through pay rises or money printing – to sustain these prices gives us good reason to believe the inflation shock coming will not be as bad as the one experienced four years ago. But for the most vulnerable it’s going to feel just as bad. That’s because where inflation does spike it will be in essential items like food, energy and fuel. And as Oxford Economics point out, this essential category takes up a much larger share of spending among worse-off households. Those households are entering this energy shock in a worse financial position than during Covid.
Unsurprising, then, that Reeves feels she has to do something to help those households. But her remedies – trying to force supermarkets to cap food prices while threatening to name and shame mythical ‘price gougers’ – are at best lip service and at worst totally counterproductive. The trouble is any inflationary shock we will experience this summer is largely out of our control and she should be honest with the public about that.
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