UK inflation remains at 2.2% in August – what it means for your money
THE UK’s rate of inflation remained at 2.2% in August after rising to the same figure the month before.
The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure stayed at 2.2% in the 12 months to August.
It comes after inflation, which measures how much the cost of goods and services are increasing or falling by, rose by 2.2% in the 12 months to July.
Grant Fitzner, chief economist at the ONS, said inflation held steady in the 12 months to August due to various goods and products going up and down in price and offsetting one another.
He said air fares showed a large monthly rise, in particular due to travel to European countries.
However, fuel prices fell as well as prices at restaurants and hotels.
He added: “Also, the prices of shop-bought alcohol fell slightly this month, but rose at the same time last year.
“Following two months of growth, raw material prices fell, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed again.”
The latest inflation figures come ahead of the Bank of England (BoE) meeting tomorrow to decide whether to increase, lower or keep interest rates the same.
The central bank’s Monetary Policy Committee (MPC) last voted to lower the base rate from 5.25% to 5% in August.
The base rate impacts what households pay on savings rates, mortgage rates and more.
Luke Bartholomew, deputy chief economist at abrdn, predicted the latest inflation figures would see the BoE keep the base rate at 5% tomorrow.
He added: “It is hard to see this inflation report changing many minds at the Bank of England, with the data coming in pretty much exactly as expected.
“Certainly the fact that headline inflation is a touch above target will come as no surprise to policymakers.
Inflation hit 11.1% in October 2022, a 41-year high, driven by soaring gas and electricity prices.
But it has since slowed to hover around the 2% mark, although it rose for the first time since December in July.
WHAT IT MEANS FOR YOUR MONEY
Rising inflation indicates that the cost of goods and services is increasing which is bad news for households.
But even if it goes down it still means the price of things is rising, just at a slower rate.
However, Alice Haine, personal finance analyst at Bestinvest, said today’s figures would offer “relief” for households trying to balance their budgets after the high borrowing and living costs of the last couple of years.
She added: “A stable headline inflation figure is comforting for households who may now be enjoying more financial breathing space as incomes stretch further than they did a year ago.
“It’s important to remember, however, that prices are still very much on the rise, they are just increasing at a significantly slower pace
than at the height of the cost-of-living crisis.”
The CPI measure of inflation is just one measure of inflation that reflects how much goods and services and rising.
Core inflation is another measure which doesn’t take into consideration volatile items like and food and energy.
That figure rose by 3.6% in the 12 months to August, up from 3.3% in July, which was a worry, Alice added.
She said it signals that “some of the stickier inflationary pressures may still be lingering”.
She continued: “Add in a slight uptick in services inflation to 5.6% from 5.2% in July – though comfortingly food inflation edged lower to 1.3% – and the Bank of England has some thinking to do ahead of its interest rate decision tomorrow.”
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we’re earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.