Today’s inflation figures are akin to a hangover that grows worse throughout the day. You wake up surprisingly chipper, just a sore throat and achy arms. But pretty soon you realise things are heading south, you’re not 21 anymore, and a deep familiarisation with the toilet bowl awaits. Oh, and you didn’t even have fun last night.
The headline rate of inflation has fallen sharply to 8.7 per cent in April, down from 10.1 per cent in March. This is the first time since last August it has come in below double-digits. I hope you enjoyed that morsel, because here endeth the good news section of this newsletter. The bad news is as follows:
- That 8.7 per cent figure was above City expectations of 8.2 per cent
- Core inflation (which strips out volatile inputs such as fuel and food) rose from 6.2 per cent to 6.8 per cent, indicating that underlying price pressures may be more entrenched than initially thought
- Core inflation is now the highest it has been in three decades and also the biggest in the G7
- Food price inflation is romping along at a staggering 19.1 per cent, with bread up nearly 20 per cent, pasta nearly 30 per cent and olive oil nearly 50 per cent
- Interest rates, which earlier in the year seemed as if they might peak at 4.5 per cent, are now expected to go above 5 per cent
- That in turn has sent 10-year gilt yields up to near Truss-era levels(!), raising the cost of government borrowing
There’s one final point I’ve held back which is in some senses obvious, but nevertheless worth underscoring. The significant fall in the headline rate of inflation is largely driven by the fact that 2022’s huge energy price rises have simply fallen out of the calculations.
In other words, it is not because of a broad slowdown in price rises across the economy. So the cost of living crisis doesn’t change as much as you’d think. If it helps, think of us as having effectively lapped last spring’s peak shock. More to the point, as the Institute for Fiscal Studies points out, energy prices are still over double their October 2021 level.
I suspect there is a little panic in Downing Street that Rishi Sunak’s pledge to halve inflation by the end of the year is now seriously under threat. Yet this would be mere displacement activity. Clearly, it would be politically embarrassing for the prime minister to miss the pledge, not least because at the time he made it in January, it didn’t appear to be an especially ambitious target.
But when things are this bad, the exact wording of pledges is reduced to semantical grains of nothingness. Much like how the distinction between a shallow recession and a flatlining economy may be important to economists and Treasury officials, but it makes precious little difference to people who just want to be able to afford pasta for dinner.
In the comment pages, Anne McElvoy says Rachel Reeves is making Labour look afraid of its own shadow. Ayesha Hazarika reflects on how children of immigrants are caught between two worlds. While Ross Lydall has read Sadiq Khan’s new book and shares 12 things he bets you didn’t know about your mayor. (To make this properly clickbaity, you’ll never guess what number four is.)
And finally, not a member? Join the club. As the line between members’ clubs and restaurants is being blurred more than ever before, David Ellis gets his foot in the door.
