Inflation falls to 6.8% - what does it mean for your household budget?

Inflation fell to 6.8% in July, according to the Consumer Price Index (CPI) out today, decreasing from 7.9% in June, the Office for National Statistics (ONS) has said. It’s now at a 16-month low.

The CPI measures the average price of goods bought by UK households.

Today’s figures mean prices are still rising but at a slower rate than before.

Therefore, Brits are now paying 6.8% more for food, fuel, and energy in July this year than they were during the same month in 2022.

The drop means that for the first time since autumn 2021 prices are increasing less rapidly than wages, which grew 8.2% in the three months to June.

ONS said this month’s fall was mainly down to cheaper gas and electricity prices. And while food prices rose slightly (0.1%) in July 2023, it was by less than in July 2022, with households paying less for milk, bread, and cereals.

Hotels and flights saw the greatest increases.

Core inflation was unchanged in July, with the falling costs of goods offset by higher service prices.

 

What it means for your household budget

A drop in inflation means while prices are still rising, they’re doing so at a slower rate than before.

Higher inflation means the cost of everyday essentials such as food, energy and fuel are rising.

Today’s figures mean households should start to feel a difference in the price of their weekly food shop, especially with essentials such as milk, bread and cereal falling.

The Bank of England bases its interest rate on inflation figures. It increases interest rates to help cool or reduce inflation and keeps them low when inflation is low.

There has been 14 consecutive interest rate rises in the UK since December 2021, with rates at their highest levels since February 2008.

The Bank of England is expected to raise interest rates again when it next meets on 21^st September to try to bring down inflation further.

This is good news for savers who will receive a boost to their savings, but bad for homeowners with mortgage rates rising again.

 

What’s inflation?

Inflation is a measure of how prices of goods and services are changing in the UK.  It can have a big impact on people’s household finances.

Each month the ONS publishes the latest annual inflation rate, which measures the change in price of regularly purchases products – known as the basket of goods and services – compared with the same time the previous year.

Some goods contribute more to the overall inflation rate than others – if some products see a larger increase in prices, while others stay more stable, then inflation would be driven by the changing prices in that spending category.

So, how the headline inflation rate affects your household depends on which products you tend to spend your money on.