Inflation slows sharply to 7.9 per cent in June; Food prices down by one per cent

Inflation fell by more than expected in June and was its slowest in more than a year at 7.9 per cent, according to official data that will ease some of the pressure on the Bank of England to keep on raising interest rates sharply.

Sterling fell as the Office for National Statistics said the consumer price inflation growth rate was its lowest since March of last year but remained above the pace of price growth in many other big, rich economies.

Economists polled by Reuters had forecast that the CPI rate in the 12 months to June would drop to 8.2 per cent from May’s 8.7 per cent, moving further away from October’s 41-year high of 11.1 per cent but still far above the BoE’s 2 per cent target.

The BoE said in May it expected inflation in June would fall to 7.9 per cent. Core inflation – a measure which excludes food, energy, alcohol and tobacco prices and which the BoE watches closely to gauge underlying price pressures – also dropped by more than expected, coming in at 6.9 per cent from May’s 7.1 per cent, its joint highest in more than 30 years.

Economists polled by Reuters had expected the core measure of price growth to hold at 7.1 per cent.

Food price inflation slowed to 17.3 per cent – still a major strain on the finances of many households – from 18.3 per cent in May.

“Food price inflation eased slightly this (June) month, although it remains at very high levels,” ONS chief economist Grant Fitzner said in the release.

He added that although manufacturing costs remained elevated, “the pace of growth has fallen across the last year”.

Chancellor Jeremy Hunt noted in a separate statement that “high prices are still a huge worry for families and businesses.

“The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”

Prime Minister Rishi Sunak has set a target of reducing inflation to five percent by the end of 2023.

In a bid to cool prices, the BoE has ramped up interest rates 13 times in a row to the current level of five percent, from 0.1 per cent in December 2021. The central bank is expected to raise interest rates for the fourteenth time in a row on August 3.

The move has sparked mortgage turmoil as commercial lenders lift their own rates on home loans, worsening a cost-of-living crisis.

Following Wednesday’s data, the pound dropped under $1.30 “as softer inflation tempered Bank of England hawks”, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“But even with a softer-than-expected figure, inflation in Britain remains high and stickier than in other Western economies, and that keeps odds for further BoE action” on raising rates.