Does a fall in inflation mean the cost of living will ease?

Inflation has fallen once more, which, given that the country isn’t also obviously heading for recession, is good news.

- SEAN O'GRADY

The Consumer Prices Index (CPI) rose by 1.7 per cent in the 12 months to September 2024, compared with 2.2 per cent in the year to August. So prices are still rising, but the latest figure is way down from the peak annual CPI rate of 11.1 per cent recorded in October 2022.

In part, the drop has been due to the diminishing impact of the invasion of Ukraine, and the Covid pandemic, on food prices and energy bills – they’re no longer doubling every year or two. But in any case, the news will be of small comfort to the chancellor, Rachel Reeves, as she approaches what might be called a “challenging” Budget...

Why is inflation down?

The effects of the pandemic and the energy crisis are wearing off, but the particular factors at the moment are actually cheaper petrol and diesel, and lower air fares, though these are offset by higher food costs. The drop in inflation isn’t quite as encouraging as it looks, though, because “core” inflation, which strips out volatile items, is not down by as much. That’s the measure the Bank of England pays most attention to.

What good will this do Reeves?