UK Inflation CPI Falls to 7.9% pa but RPI is Up

The Office for National Statistics (ONS) has this morning (7am) released Consumer Prices Index (CPI) inflation figures for June 2023 and it has fallen by 0.8% from 8.7% pa in both April and May 2023 to 7.9% pa in June.

The largest contributor to price falls were transport given fuel prices have fallen for an average litre at the pumps of 143.04p for petrol and 145.77p for diesel compared to the July 2022 highs of 191.53p for petrol and 199.05p for diesel.  This is a fall of 25.3% for petrol and 26.8% for diesel.

UK CPI is still high when compared to the USA at 3% pa whilst in Europe, commentators are forecasting inflation increases in both France and Germany.

Food Still High

Prices for most UK sectors fell overall but some are still exceptionally high, notably food and non-alcoholic beverages inflation is down from 18.3% pa but still huge at 17.3% pa.  Major contributors to the falls were food and non-alcoholic beverages, transport, furniture and household services as well as restaurants and hotels.  Communications (your mobile/broadband etc) as well as clothing and footwear prices still increased.

Switch Your Mobile?

Our mobile telephone and broadband providers are still pushing their prices up even higher than they should be.  As we mentioned last month, most people have mobile contract deals now at 3-5% + CPI increases each year.

Old Inflation Measure - Retail Prices Index (RPI): What’s the difference between RPI and CPI?  Why Has RPI Increased?

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) increased from 10.3% pa in May to 10.7% pa in June.  Remember RPI includes housing costs, road fund license, council tax, mortgage interest payments, etc. However, CPI does not have these housing costs.  It tells us that interest rate increases, and higher mortgage payments are squeezing our pockets.  We prefer RPI as a measure as it tells us that things are tighter for us all when looking at whole expenditure but we understand the Government’s desire not to use RPI as an official national statistic because it would become a ‘vicious circle’ if the Bank of England was using RPI as the benchmark to judge increasing interest rates to bring inflation down because any increase in interest rates would, by default, push RPI up.

Comment - What does this tell us?

Despite many commentators suggesting this is a big fall in CPI with ‘wiggle’ room for the Bank of England to not increase interest rates and UK stock markets already up this morning on the news, we suggest the CPI fall is simply not enough and with RPI up, the Bank of England will want to put a further squeeze on spending with interest rates to increase by another 0.25% up from 5.0% pa to 5.25% pa on 3^rd August 2023 and possibly by another 0.25% in September.