UK inflation fell to 9.9% in August, returning below double-digits after hitting a 40-year record of 10.1% in July.
Falling petrol prices were the main driver behind the inflation slowdown, with the annual rate for motor fuels easing to 32.1% from 43.7%, as a result of petrol prices falling 14.3p per litre over the period.
Diesel prices also fell by 11.3p per litre over the year, against a 1.5p per litre rise a year previously.
“It’s way too early to say that inflation has peaked, but the dip below double figures is psychologically important for households getting ready for what they’re expecting to be a difficult winter,” said AJ Bell financial analyst Danni Hewson.
“Prices are still excruciatingly high but there have been falls in key goods, most notably the price of petrol.”
“A litre of unleaded fell by 14.3 pence over the month with diesel down by 11.3 pence, making the cost of filling up slightly more manageable for families and businesses.”
Food prices
However, food prices saw the largest spike month-on-month since 1995, increasing 13.1% year-on-year against a 12.7% surge in July.
The biggest contributors to the food price growth were milk, cheese and eggs, while the overall prices for food and non-alcoholic beverages rose across 2022, with the 1.5% climb between July and August marking the largest July to August rise since 1995.
“[Don’t] be fooled into thinking the cost-of-living crisis is over. Anyone who wheeled their trolly down supermarket aisles last month will know this,” said Hewson.
“Food prices rose by 13.1% over the year to August, and the jump month on month was the biggest since 1995. Milk, cheese and eggs were singled out by the office for national statistics – dietary staples people rely on and usually consider affordable options.”
Bank of England interest rates decision
The figure will likely boost hopes of a less severe cost of living crisis as winter draws nearer, however it remains to be seen how the Bank of England will react in its next interest rates decision.
“On the one hand, headline CPI inflation came in lower-than-expected, but the underlying core CPI measure remains stubbornly high, increasing the pressure on the Bank of England to raise interest rates by more than the 50bps expected by the Bloomberg consensus of economists when it meets on 22 September,” said Evelyn Partners chief investment strategist Daniel Casali.
Energy price cap freeze
However, the recent energy price cap freeze has helped assuage fears of soaring 20% inflation some analysts had estimated before the energy prices assistance.
“There’s no denying August’s fall is good news for UK households and there’s a real sense of expectation that the spectre of 20% inflation has been pushed firmly aside following the government’s energy price freeze announcement, but there is still a real possibility that there will be more bumps on the long road back to the two percent target,” said Hewson.
“While energy prices have been capped, people will still be paying more for their gas and electricity come October and, as the nights draw in, they’ll also be using more power.”
“Then there’s the big question about what else the new Chancellor might pull out of his hat when he finally delivers his emergency budget expected next week. And with concern mounting that the promised help with energy costs for businesses might not be ready for roll out before November, there are still huge variables to consider which may well stoke the inflationary fire once again.”