The bar for a Bank of England rate hike remains high. That’s the main message from today’s UK inflation figures.
Headline inflation is up three-tenths of a percentage point to 2.9%, on the well-telegraphed rise in household energy bills and also a bigger rise in social rents than this time last year. That was offset by July’s short-lived dip in petrol and diesel prices (spoiler alert: that won’t last into August’s figures).
None of that was unexpected. What remains much more surprising, however, is just how benign food inflation is right now. Prices here were flat on the month, having fallen in month-on-month terms in the two prior readings, something that is highly unusual. A quick glance at producer prices suggests consumer food inflation could theoretically even go negative in annual terms over the next few months. We’re not convinced that will happen – and it was always going to take at least a year for the full effects of the Iran War to show up here.
But it should still be welcome news for the Bank of England’s hawks, who point to the influential role of food prices in setting household inflation expectations.