Does lower inflation mean that the worst price rise is over?

The fall in the inflation rate in November prompted many experts to declare that the worst of the cost of living crisis is over.

The drop to 10.7% from the 41-year high of 11.1% in October should mark the start of a downtrend.

But that has brought little relief to households and businesses, which still face exorbitant prices across the board.

Here we look at the key issues surrounding the official numbers.

– Why did the rise in prices ease in November?

The Office for National Statistics (ONS) said the fall in the consumer price index (CPI) was due to lower prices for petrol and diesel, as well as second-hand cars.

The data showed that petrol prices remained unchanged between October and November this year, at 163.6 pa liter on average, but increased by 7.2 pa liter a year earlier.

Diesel price increases have also eased, rising by 4p per liter this year to 187.9p, compared to a larger rise of 7.4p per liter a year ago.

Used car prices also helped the CPI retreat, falling 5.8% on the year to November compared to a 2.7% drop on the year to October. .

But a fall in the inflation rate in the UK does not mean that prices are falling, just that they are not rising as quickly.

For example, petrol and diesel prices are still much higher than a year ago – at 163.6p and 187.9pa liter respectively, compared to 145.8p and 149.6pa liter in November 2021.

(PA graphics)

– Is the worst behind us?

The figures give hope that the peak of inflation has passed. Economists estimate that the rise in prices will continue to slow in the coming months and throughout 2023.

Gasoline prices fell as oil prices fell on demand concerns amid a global economic slowdown, with prices for other commodities also falling.

Samuel Tombs of Pantheon Macroeconomics estimates that the CPI will gradually decline to around 8% next April and 3% by the end of 2023.

But price rises aren’t slowing across the board, with food inflation hitting a 45-year high last month of 16.4%, while electricity costs remain painfully high.

– Does this mean that the cost crisis is over?

Unfortunately, it will still be a very difficult winter for British families, with inflation remaining close to a 40-year high despite November’s drop.

The price of many basic necessities is still very high, especially for food and energy.

While government support has capped the average annual bill to around £2,500 since October, this is still a massive rise in electricity costs compared to a year ago – and the cap will rise further to £3,000 a year from next April.

Analysis by the Resolution Foundation think tank also reveals that it is the poorest who suffer the most.

It found that the effective rate of inflation for the poorest families is frustratingly high, at 12.1% – far higher than that recorded by the wealthiest households, at 9.4%.

(PA graphics)

(PA graphics)

– Do wages follow inflation?

Unfortunately no. The cost crisis is compounded by the fact that wage increases are significantly lower than price increases.

Official figures on Tuesday showed regular pay, excluding bonuses, rose 6.1% in the three months to October – but that marked a 3.9% drop after accounting for inflation from the CPI.

– What does lower inflation mean for interest rates?

The Bank of England will no doubt be encouraged by the fall in inflation in November, but it does not seem to be taking its foot off the pedal yet.

Economists predict he will seek further interest rate hikes on Thursday, from 3% to 3.5%, to help further curb inflation.

But some believe the pace of increases will slow after this month, with inflation easing and the UK set to be in recession through 2023.

Leave a Reply

Your email address will not be published. Required fields are marked *