Today’s inflation drop is ‘thin gruel’ and soon that’s what we’ll all be eating
Inflation falls to lowest level in over a year
Economists were predicting inflation would fall to 8.2 percent. That makes today’s figure yet another disappointment, even if it is markedly lower than March’s shocking figure of 10.1 percent.
As ever, the devil is in the detail, and today’s update contains some pretty fiendish figures.
Inflation is still more than four times higher than the Bank of England’s fanciful target of just two percent.
We face a long wait before prices return to that kind of level, whatever the BoE may claim.
Headline inflation has dropped primarily because last April’s sharp rise in electricity and gas prices have fallen out of the annualised number, known as the “base effect”.
Incredibly, month-on-month inflation actually accelerated to 1.2 per cent, the highest since October 2022.
Core inflation, which excludes volatile items such as imported food and energy, rose by 6.8 percent. That’s up from 6.2 percent in March to hit a 21-year high.
Food prices are absolutely rocketing, up a staggering 19.1 percent in the year to April. Which is a nightmare because people have to eat.
It’s increasingly looking like a scandal, too, because while UK shop prices soar global food prices are actually plummeting.
The UN Food and Agriculture Organisation’s index of global food prices shows a drop of 19.7 percent in the year to April.
Yet in the UK, they have rocketed by almost the same amount. Somebody, somewhere is making a lot of money out of us.
Profiteering is definitely part of it. Food manufacturers felt they were charging too little for years, now they’re seizing the opportunity to boost margins.
It’s not the only factor, though.
High energy costs have driven up the cost of transport and storage, while rising labour costs also have a knock-on effect on food production costs.
Food commodities such as wheat, corn, soybean and coffee are sold on fixed contracts, and these have yet to expire keeping prices high.
Food price inflation will eventually slow but will take months and months, and todays’ increases are baked in for good.
Pensioner incomes simply cannot keep up. April’s 10.1 percent triple lock uplift looks feeble as everyday essentials rise by almost twice as much.
Earnings are falling behind, increasing 6.9 percent in February across the private sector, and just 5.3 percent for public sector workers.
The government’s energy price guarantee expired last month. Now we need a food price guarantee.
Communication, transport, alcohol and tobacco prices are also rising.
Borrowing costs will climb higher still as the Bank of England is almost certain to increase interest rates again this year, possibly as high as 5.5 percent.
Briton are buried in debt and many will struggle to service their commitments. Some could lose their homes.
Yesterday, Chancellor Jeremy Hunt was enjoying IMF research showing that the UK is going to grow at a faster pace than Germany.
While the IMF reckons the UK will avoid a recession, it also predicted that our economy will grow by a meagre 0.4 percent this year.
As prices continue to climb, this looks alarmingly like 1970s-style stagflation to me.
Worse, the UK is cornered.
Neither Hunt nor the Bank of England can do anything to stimulate the economy, such as cut taxes or interest rates, as that will only throw fuel on the inflationary fire.
So as food and other bills continue to soar, workers have less in their pockets because they’re handing over more of their earnings to HMRC.
As if that wasn’t bad enough, the cost of servicing the UK’s £2.4trillion public debt will continue to rise with interest rates.
At the same time the population is getting older and sicker, with five million of working age living on benefits.
We should be grateful for any scrap of good news these days, but this morning’s inflation figure is particularlly thin gruel.
And that’s what a lot of us will soon be eating if food prices continue to rise at this pace.
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