Energy Prices Drive Fall in CPI, Masking Worrying Underlying Trends

Main points

• Annual consumer price inflation decreased from 10.1 per cent in March to 8.7 per cent in April. This fall was largely driven by price decreases in housing and household services (specifically gas and electricity) which were partially offset by price increases in food.
• Food inflation fell to an annual rate of 19.0 per cent in April from a 45-year high of 19.1 per cent in March. That it remains so elevated is concerning since there is no government support to help households (especially lower income households, who spend a greater part of their incomes on food) offset this cost.
• The latest figure of 8.7 per cent represents an upside surprise in headline inflation. Though energy price inflation has decreased by 41.5 percentage points between April 2022 and April 2023, food inflation has increased by around 12.6 percentage points in this time. Food is weighted higher than energy in the CPI: Electricity, Gas and Other Fuels is weighted by 49/1000 whereas Food is weighted as 107/1000. At the same time, the rate of inflation of services and non-energy industrial goods has plateaued at around 7 per cent, unsurprisingly close to today’s core CPI figure of 6.8 per cent. It seems this positive surprise is a story of increasing food inflation and persistent core inflation overtaking dropping energy prices.
• In March, core CPI inflation (CPI excluding energy, food, alcoholic beverages, and tobacco) rose to 6.8 per cent in April, its highest rate since March 1992, from 6.2 per cent in March. It remains well above the series average of 2 per cent. At the same time, NIESR’s measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes, also rose to a new series high of 10.2 per cent from 9.9 per cent in March. Trimmed-mean inflation being higher than core inflation indicates that the energy price fall which has driven headline CPI down is a rather volatile price movement. Overall, these figures suggest that we have yet to see a meaningful turning point in underlying inflationary pressure in the UK.

“Today’s ONS figure suggests that CPI inflation fell from 10.1 per cent in March to 8.7 per cent in April, breaking the seven-month streak of double-digit inflation. This fall was largely driven by falls in electricity and gas prices on the year (i.e., last April’s energy rise ‘dropping out’), though was partially offset by significant increases in food prices, which saw an inflation rate of 19 per cent in April - just 0.1 percentage point below last month’s 45-year high. Concerningly, core CPI rose to a series high of 6.8 per cent in April from 6.2 per cent in March. Overall, the data indicate that, despite a welcome fall in headline CPI, we have yet to see a turning point in underlying inflationary pressures in the UK as food prices, in particular, continue to soar; this is especially worrying as lower-income households are disproportionally hit by elevated food inflation.”

Paula Bejarano Carbo
Associate Economist, NIESR

For a breakdown of what inflation is and how it is calculated, read our blog post here.