I can reveal when your bills will fall and why the price of butter will fall
RISHI SUNAK finally got some good news yesterday: inflation fell sharply from four percent to 3.4 percent in February, the lowest level in two years.
The crisis began during the pandemic, when lockdowns and Covid restrictions led to shipping containers being stuck at sea and caused massive chaos in the supply chain. When shipping costs soared, companies began passing them on to shoppers.
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The inflation pain worsened when Russia invaded Ukraine and sent energy prices soaring.
So what does autumn mean for our wallets? . .
Question: HAS the inflation beast finally been tamed? The rapid decline from 10.4 percent in February last year to 3.4 percent marks the fastest decline in 12 months since 1978. So it’s fair to say the beast has been tamed and muzzled.
But it hasn’t stopped growling yet: we’re not richer, things are just getting more expensive more slowly.
At 3.4 percent, the level is still above 2 percent goal the Bank of England has explained.
However, economists at think tank the Resolution Foundation have said that if the pace of price falls continues to slow, inflation should fall to that golden 2 percent by then. next one month. This could give the Bank more confidence to lower interest rates.
Q: What’s behind the Last Fall? Falling hotel and restaurant prices and cheaper groceries helped bring the rate down.
Question: Does this mean my bills will finally go down? The energy bill, which is determined by Ofgem, is lower than a year ago, as are the petrol and diesel at the pumps.
But you may still see other bills rising and some groceries, including olives oil and chocolate, are increasing.
Mortgage costs have risen due to higher interest rates and rents are rising at a record pace, by 6.2 per cent in the 12 months to January 2024.
In addition, care home costs have increased, with the average weekly rate increasing by 19 percent compared to 2021/2022.
Although inflation is falling, we are not yet in deflation – a sustained decline in the price of goods and services. So overall, we will probably have higher expenses than last year.
Question: Is anything actually getting cheaper? Some dairy products that rose in price a year ago are now falling.
Security labels on packs of Lurpak heralded the start of the cost of living crisis, but now the price of tubs of butter has fallen by nine per cent.
Some dairy products that rose in price a year ago are now falling
Pasta, which also boomed after Russia invaded Ukraine because both countries produce so much wheat, has also fallen in price as supply chains have been strengthened.
Q: What does this mean for family finances in general? Shoppers have been smart and protected themselves from the full blow of inflation by switching to discounters and cheaper private labels.
According to MoneySupermarket’s latest index, regular household expenses such as insurance, mortgages and groceries have fallen by an average of £62.20 over the past three months.
However, this could also mean that households have stopped paying or canceled subscriptions.
A recent report from the banking chain DFS shows that we are postponing major purchases. And according to which? some households are missing payments on credit card or utility bills to keep up with mortgage payments.
Question: Are interest rates linked to inflation? The reason Britain has had fourteen rate hikes in a row is because the Bank is trying to reduce inflation.
Higher interest rates make borrowing more expensive and are therefore intended to reduce spending and encourage saving.
The idea is that a temperate climate would limit companies’ ability to raise prices because people can’t afford them.
Question: Does this mean rates will drop again soon? What does that mean for my mortgage? The Bank is expected to keep interest rates at the current 5.25 percent today, as its team of rate setters wants more confidence that this path of falling inflation will continue.
They are nervous that some big wage increases by top companies could push prices back up. But economists believe the Bank could cut rates within the next three months, with the next meeting in May.
Governor Andrew Bailey has said it doesn’t have to wait for inflation to reach 2 percent, but that it appears inflation is headed there.
There is a risk that if the Bank postpones the interest rate cut, companies and households will come under too much pressure.
Mortgage rates are already falling, with NatWest cutting home loan costs yesterday.
This is because the big banks are more confident that inflation will fall, so the Bank is likely to cut the base rate soon.
Q: What about the economy, will we finally get some growth? We are already emerging from a short recession, but growth is hovering around zero.
Inflation has made it harder for the economy to grow as the rising cost of goods has taken big chunks out of our pockets.
People have had to cut back because they can’t afford what they used to buy, and companies have reined in their investments because interest rates have made the cost of borrowing too high.
If there is more confidence that inflation will fall, people and businesses will start spending again, which should stimulate the economy.
Mortgage rates are already falling, while NatWest is cutting home loan costs
Q: What does this all mean for Rishi? One of the Prime Minister’s five promises was to halve inflation, and he has more than done that.
The problem is that people are still struggling, the price of goods is still expensive and the Bank’s higher interest rates have arguably played a greater role in reducing inflation than any government policy.
But after a grim ten days for the Prime Minister – full of conspiracies and internal rows – it is a much-needed boost.
He can say his plan is working and that people should start to feel a difference as wages continue to rise, mortgage rates fall and free child care is expanded, which should encourage more people to work.
The hope is that an improved economy will allow him to afford another round of tax cuts before the election.