We’ve been released from the grip of inflation, and the squeeze has finally eased a little. After falling to 3.9% last November, inflation briefly tightened its grip on our finances again, so it’s a relief to see it ease in February. Unfortunately, this doesn’t mean life is getting any less expensive, it’s just getting more expensive at a slower pace, and while we expect to see inflation keep falling – it isn’t letting go of us just yet.

Part of the February flop is down to the fact inflation surged a year earlier, by 1.1% in a month – to 10.4%, which is what we’re comparing prices to today.

A year ago, food inflation was 18.3%, whereas now it has dropped for the 11^th consecutive month to 5% – feeding lower inflation. As anyone who has been to the supermarket knows, this is very different from prices actually dropping. A handful of items are falling, including milk, cheese, butter, fish and jam. However, more generally, price rises have been baked into things like staff costs and manufacturing, so food and drink is just getting more expensive more slowly. More than nine in ten people have noticed their food bills rising in the past month, and two in five are buying less food to make ends meet.

Energy prices are also significantly less painful. Last February, the energy price guarantee was in place at £2,500 – well ahead of the cap today. Back then, electricity prices were up 66.7% in a year and gas up 129.4%. Right now, energy prices are down on the year, with electricity down 13% and gas down 26.5%, which has had a major impact on inflation. Along with transport costs, it’s the one major category of CPI which was negative over the year. However, energy bills are still significantly higher than they were before the pandemic. Still two in five people find it difficult to pay energy bills – and 3% are behind on payments.

It’s worth highlighting that the CPIH index differs from CPI quite significantly when it comes to housing costs, because it also includes rents – which has put upwards pressure on the other measure of inflation. CPI doesn’t look at housing costs, so this impact isn’t showing up in the data.

Petrol prices have risen slightly, in contrast to falls last year. So, although diesel prices are 10.8% lower than this time last year and petrol is down 3.9%, it’s putting some upwards pressure on inflation. This was partly offset by falls in second hand car inflation, for the seventh consecutive month, now the pandemic boom has run its course.

The pressure is set to keep easing in the next few months, as inflation drops rapidly towards the Bank of England’s target in the second quarter of the year. The energy price cap cut is waiting in the wings for April, helping cut one cost that has been putting so many households under so much pressure for the past few years.

Unfortunately we’re not out of the inflation woods just yet, because after hitting the target, inflation is expected to take hold of us again, and it will take a while for that to ease. As a result, the Bank of England has already said it’s not going to cut interest rates in a hurry. It’s going to wait for lower inflation to bed in. It means there’s a decent chance we won’t see cuts until August.

Source: Property Notify