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Economists Warn Reduced Inflation Masks "Worrying" Food Price Rises

Economists Warn Reduced Inflation Masks 'Worrying' Food Price Rises

The cost of household goods like food and clothes is still rising despite headline inflation falling last month (Alamy)

4 min read

Leading economic experts have warned that a slight fall in overall inflation does not provide relief for the cost of living crisis as reduced fuel costs mask the fact prices for households goods are still rising.

The Office for National Statistics (ONS) announced this morning the Consumer Prices Index was 9.9% in the year to August, down from 10.1% the previous month.

While it remains close to its 40-year record, it had not been forecast to fall since July.

However, the ONS said the inflation rate was dragged down by a 6.8% drop in fuel prices, the biggest fall since between March and April 2020 at the start of the pandemic when oil prices briefly went negative on some markets.

The Institute for Public Policy Research noted that because prices for household goods are still going up, further government intervention was therefore needed to prevent "more poverty and more destitution" this winter.

"Many people will welcome CPI inflation easing slightly this month, falling from 10.1% to 9.9%, including the Bank of England who are deciding whether to raise interest rates next week," Dr George Dibb, the head of the centre-left think tank said. 

"However, this headline figure has been pulled down by falling petrol prices, and it hides worrying news that the prices of food and clothing are continuing to accelerate upwards.

"High inflation means high prices, and without intervention this will lead to more hardship, more poverty and more destitution.”

He added: "The Government's price cap on energy for households and businesses is a welcome step but it won't instantly reduce the inflation in essentials such as food and clothing that we see today.”

Announcing the revised inflation figure on Wednesday morning, the ONS said: "The easing in the annual inflation rate in August 2022 reflected principally a fall in the price of motor fuels in the transport part of the index.

"Smaller, partially offsetting, upward effects came from price rises for food and non-alcoholic beverages, miscellaneous goods and services, and clothing and footwear.”

Alex Veitch, director of policy and public affairs at the British Chambers of Commerce, said the government needs to provide more detail on how the plan to cap energy costs will work, as well as further support to deal with rising prices.

Prime Minister Liz Truss has insisted that last week's major energy relief plans for households will curb inflation and ease the cost of living. But news of the death of the Queen shortly after the policy was announced, leading to a ten-day pause to all government business, has so far prevented scrutiny of how ministers intend to pay for the plan. Detail on support for businesses is also on hold following the Queen's death. 

"There is a limit to how long any firm can sustain these rising costs before something has to give,” Veitch said.

“We know from our research that two-thirds of businesses plan to increase their own prices.

"The size of last week's Government intervention on energy prices should have a dampening effect on inflation when it is enacted.

"But the lack of detail on exactly how much help any individual business will get, and for how long, means very few will be planning to invest any time soon."

There has also been criticism that wages do not match rising living costs, even as inflation falls slightly. In response to today's figures, Sharon Graham, general secretary of the Unite union, warned of a "crisis of income”.  

“Rocketing inflation may have been eased last month but that won't last," she said. 

“Current levels continue to threaten the living standards of millions of workers. This is now a crisis of income. Only the rich and powerful are protected.

"It's time for the rest of us to organise into trade unions and take back our share of the corporate profits we create."

The Resolution Foundation said although inflation decreased overall the cost-of-living gap between high and low income households grew, with the poorest tenth of households experiencing an average inflation rate of 10.6 per cent, compared to 9 per cent for the richest tenth.

“High inflation continues to drive Britain’s cost-of-living crisis, but the outlook has brightened considerably over the past week," Jack Leslie, senior economist at the think tank. 

“The Energy Price Guarantee should prevent a second winter surge in prices, while factory gate inflation is starting to ease.

“However, high inflation is set to be with us for some time, particularly for low-income who continue to be hit hardest by high prices.

“Having delivered £2,200 worth of cost-of-living support for every household this year, the government will need to consider what support will be needed next year too.”

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