The rate of inflation fell to 8.7 per cent in April, the Office for National Statistics announced this morning. That is down 10.1 per cent from March and represents the first time the rate of price increases had fallen below 10 per cent since August last year.
On the face of it, this is excellent news for Rishi Sunak and Jeremy Hunt. Despite inflation nominally being under the purview of the Bank of England, Andrew Bailey’s incompetence and their desire for a quick win meant the pair made halving inflation one of their five pledges.
That all major forecasts had inflation halving anyway – and because most voters don’t care for the intricacies of monetary policy – this seemed to be a no-brainer. But when inflation remained higher than forecast last month, a few nervous looks will have been shared in Downing Street.
So although inflation remains four times the Bank’s target rate, today’s figures do appear to show the fall is back on track. The major force behind the falling rate is gas and energy prices. Last April’s post-Putin hike has now exited the estimates, whilst prices themselves are now rapidly coming down.
Yet whilst this will all be welcomed by Sunak and Hunt, it is hardly an opportunity to break out the (alcohol-free) bubbly. Whilst this was the largest monthly fall in inflation in over thirty years, it was still below estimates – and the headline figure hides some nasty gremlins.
Firstly, food inflation is still surging. It fell a measly 0.1 per cent between March and April, and still stands at 19 per cent. Several reasons are being given for this – like poor harvests, the Ukraine war, Brexit, and the poor exchange – but they all add up to higher prices for consumers.
For goods and services to become more affordable, inflation would need to fall behind wage growth. This is unlikely to happen in a context of rising unemployment and reduced pressure for pay rises. Millions are also seeing themselves pulled into higher tax brackets through the voodoo of fiscal drag.
With inflation coming down and the IMF no longer predicting a recession for Britain this year, Sunak and Hunt may be hoping that they will have sufficient wiggle room either this Autumn (unlikely) or next Spring to introduce that cut to the basic rate of income tax that Sunak previously promised.
Yet that will be more difficult to do because of the consequence of another figure announced today: the rate of “core” inflation. This excludes those goods and services (primarily food and energy) whose price is more volatile. Unfortunately, it saw a rise from 6.2 per cent to 6.8 per cent in April.
This is the highest rate since 1992. It suggests inflation is more deeply entrenched that the Bank was hoping and makes a further rise in interest rates more likely. That means more pain for borrowers and households and makes getting inflation halved by the end of the year look impossible.
So, whilst the headline rate may have been good for Downing Street this morning, the devil is in the detail. Claiming credit for falling inflation increasingly seems to have been a mistake by the Government. It was always a hostage to fortune, whatever strategic sense it might have made.