No Respite For UK Consumers As UK Inflation Surges To 10.1 Per Cent

Main points

• Headline consumer price inflation increased to 10.1 per cent in July 2022 from 9.4 per cent in June. Our measure of underlying inflation which excludes 5 per cent of the highest and lowest price changes, increased further to 7.2 per cent: the highest since the start of this series in January 1992!
• Between June and July, the food and non-alcoholic beverages contributed almost half or 0.32 percentage points to the change in the headline figure.
• Our analysis suggests that in July, approximately 32 per cent of goods and services prices changed with almost 19,000 items recording price increases, while 4.5 per cent of prices were reduced due to sales and 4.6 per cent fell for other reasons.
• Underlying inflation increased in each of the 12 UK regions in July. Underlying inflation in the East Midlands was the highest at 8.0 per cent, while Northern Ireland had the lowest rate at 6.4 per cent in July.
• Considering the elevated food prices and the expected rise in the energy price cap in October 2022, we now expect annual CPI inflation to accelerate to a peak of around 13 per cent in January 2023.
• Consumer purchasing power continues to be eroded by soaring inflation, with the latest earnings data, covering the three months to June 2022, suggesting that real regular pay fell by 2.5 per cent on the year.
• With the UK expected to remain in recession until the first quarter of 2023 and real incomes forecast to decline by 2.5 per cent this year, the Bank of England continues to face a challenging economic environment, with risks of both a deeper and longer recession and of inflation becoming persistent.

“Annual headline CPI inflation increased to 10.1 per cent in July from 9.4 per cent in June. NIESR’s measure of underlying inflation, which excludes extreme price movements, rose by 1.0 percentage points to 7.2 per cent in July: the highest since the start of this series in January 1992! The surge in UK inflation was mainly accounted for by food and non-alcoholic beverages which contributed 0.32 percentage points to the monthly change in the headline figure. Underlying inflation increased in all of the 12 UK regions in July, although inflation in the East Midlands is now the highest at 8 per cent. Considering the ongoing surge in food prices and the expected hike in the energy price cap in October 2022, we now expect annual CPI inflation to peak close to 13 per cent at the end of 2022 and start of 2023.”

Urvish Patel
Associate Economist, Macroeconomic Modelling and Forecasting

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