Inflation remains stubborn at 8.7% – business industry reaction

22nd June 2023

Latest data from the Office of National Statistics (ONS) has showed the annual rate of CPI inflation remained flat at 8.7% in May 2023, with core inflation rising from 6.8% to 7.1%,

There is no a fear that the rise in core inflation could spook the markets with core inflation (stripping out energy, food, alcohol and tobacco) rising again to 7.1% – its highest rate in over 30 years.

Commenting on the inflation figures for May, ONS Chief Economist Grant Fitzner said “After last month’s fall, annual inflation was little changed in May and remains at a historically high level.”

“The cost of airfares rose by more than a year ago and is at a higher level than usual for May. Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”

“These were offset by a fall in the cost of petrol. Food price inflation remains high, but the rate has eased slightly this month with costs rising more slowly than this time last year.”

Kitty Ussher, Chief Economist at the Institute of Directors, said “The market was expecting the headline rate of inflation to fall slightly in May, driven by early signs that food price inflation had peaked, and continuing reductions in the price of petrol. However, these falls have been offset by increases in the price of services, notably recreation and culture, but also air travel and prices charged in restaurants and hotels.”

“Possible explanations are the continuing impact of high energy costs and strong wage pressure being passed through to prices, all overlaid with high demand for leisure activities among households with disposable incomes.”

“Overall, the rise in core inflation shows we are not yet out of the woods, meaning there is little doubt the Bank of England will raise rates tomorrow; the question is by how much.”

Helen Dickinson, Chief Executive of the British Retail Consortium, said “It is a really positive sign that food inflation has fallen for the second consecutive month, the first time this has happened since the Ukraine war began. While some prices continue to rise, we are now seeing regular news reports of falling prices on many essential products, such as loo rolls and vegetable oil. It has been good to see larger drops in inflation rates for flour, milk and eggs as retailers continue to invest heavily in lower prices for the future and locking the price of many essentials, helping the UK to deliver some of the cheapest groceries in Europe.”

“Elsewhere, consumers will find themselves under pressure from increased health and communication costs, as inflation rates in both categories rose in May.“With inflation generally trending down, it is vital that Government does not introduce new policies that would add costs to retailers. Government should consider how current timelines for a deposit return scheme and reformed packaging levy could limit the ability of inflation to fall. This is on top of a new Windsor framework labelling, and upcoming increases to business rates.”