Inflation and deflation
Summer bad weather and the continued cost of living crisis saw consumers spending less in the first week of August 2024. Because of this, retailers dropped prices to shift fashion, electronics and furniture stock, resulting in the UK seeing deflation for the first time since October 2021. On average prices in these sectors dropped by 1.5%.
But food prices still increased at 2% more than during August last year. Fresh food slowed to a 1% increase and ambient food (products that can be safely stored at room temperature, such as tinned goods, crisps, tea bags and biscuits) remained at 3.4%.
Although food prices continue to climb, the rate that overall prices are rising has slowed and this month was the lowest increase since November 2021.
Helen Dickinson, chief executive of the British Retail Consortium (BRC), said “The outlook for commodity prices remains uncertain due to the impact of climate change on harvests domestically and globally, as well as rising geopolitical tensions.
“As a result, we could see renewed inflationary pressures over the next year.”
The cost of raw material levels rose when the war in Ukraine broke out in 2021 which fed through to rising consumer prices, increasing inflation. The Office for Budget Responsibility (OBR) forecast deflation in 2024 and into 2025 so I think we can expect this trend to continue. The start of deflation has come a few months later than most economists predicted.
What does the future hold?
The Bank of England predicts an increase from the current 2.2% to around 2¾% towards the end of the year, before falling again after that. And, of course, the energy price cap has gone up 10% which will subsequently contribute to a rise in inflation.
View this post on Instagram
