Inflation Report - July 2023

This week the Office for National Statistics (ONS) published the inflation data covering the 12-month period leading up to July 2023, revealing a 6.8% increase in CPI inflation. This indicates a decrease of 1.1 percentage points compared to June 2023, signifying a deceleration in inflation.

The decrease is largely attributed to a considerable decline in gas and electricity costs. However, the anticipated decrease in underlying price pressures did not materialize, thereby sustaining the pressure on the Bank of England to maintain elevated interest rates.

Suren Thiru, economics director at the ICAEW accountancy trade body, said:

“Although these figures provide reassurance that the inflation tide has turned, this latest drop owes more to lower energy bills, following the reduction in Ofgem’s energy price cap, than to a broader easing of price pressures.”

Heidi Karjalainen, IFS research economist, said:

“The progress that has been made is mainly due to the fact that commodity and energy prices are no longer increasing at the rates they were last year. The challenge is that core inflation remains stubbornly high, and considerably higher than was expected back at the start of the year.”

The ONS reported:

• The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 6.4% in the 12 months to July 2023, down from 7.3% in June.

• On a monthly basis, CPIH fell by 0.3% in July 2023, whereas it rose by 0.6% in July 2022.

• The Consumer Prices Index (CPI) rose by 6.8% in the 12 months to July 2023, down from 7.9% in June.

• On a monthly basis, CPI fell by 0.4% in July 2023, compared with a rise of 0.6% in July 2022.

• Falling gas and electricity prices provided the largest downward contributions to the monthly change in CPIH and CPI annual rates; food prices rose in July 2023 but by less than in July 2022, also leading to an easing in the annual inflation rates.

• Hotels and passenger transport by air were the classes that provided the largest offsetting upward contributions to the change in the rate.

• Core CPIH (excluding energy, food, alcohol and tobacco) rose by 6.4% in the 12 months to July 2023, the same rate as the 12 months to June 2023; the CPIH goods annual rate slowed from 8.5% to 6.1%, while the CPIH services annual rate was 6.5%, up from 6.3% in June.

• Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.9% in the 12 months to July 2023, unchanged from June; the CPI goods annual rate slowed from 8.5% to 6.1%, while the CPI services annual rate rose slightly from 7.2% to 7.4%.

Source: ONS