Sterling Savvy

Why is inflation taking so long to come down?

Why is inflation taking so long to come down?

Inflation in the UK has cooled considerably since 2022, when it hit double-digit highs of 11.1%.

The latest consumer price index reading for January came in at 4% – and while this is better than what forecasters had anticipated, it remains unchanged from the month before.

Given the Bank of England’s long-standing target is 2%, that means the cost of living remains considerably higher than what policymakers are comfortable with.

Interest rates have been hiked to 5.25% in an attempt to cool inflation down – and there are signs this is working. Earlier this month, it was confirmed that the UK fell into recession at the end of 2023.

But why is inflation so sticky right now – and when will it return to normal? 

What’s keeping inflation high?

Unfortunately, there isn’t a simple answer here, as multiple factors are to blame.

Some of those date back to the coronavirus pandemic, which contributed to extensive worker shortages. This left businesses with no choice but to increase hourly rates in an attempt to entice applicants. Much of these costs were subsequently passed on to customers.

Russia’s war in Ukraine compounded the problem because it accelerated energy prices – so much so that the government had to intervene to offer financial support to households.

The cost of oil has also suffered volatility after Iran-backed Houthi militants in Yemen began attacking shipping containers in the Red Sea.

Companies are now avoiding shipping lanes on the busy corridor and taking a long diversion around Africa – a process that adds 10 days to delivery times and incurs much more cost. Many of these price rises are being passed on to customers.

What happens next?

The Bank of England is confident that inflation will return to 2% at some point this year – but given global shocks keep on coming, this is by no means guaranteed.

Unfortunately, there’s little sign that the price rises seen across a plethora of everyday staples will be reversed. While food price inflation has cooled to a two-year low, the cost of groceries is still 5% higher than it was a year ago. 

To add insult to injury, household bills are set to rise in April. Most local authorities are set to hike council tax by the maximum of 4.99%.

Rail fares are also going up by 4.9% at the beginning of March, considerably increasing season tickets at a time when commuters are being urged to get back into the office.

Telecoms firms are being criticised for bumping up the cost of mobile phone contacts in the middle of agreements – amid claims consumers have to swallow the increase or face eye-watering exit fees.

Overall, the data suggests that there is light at the end of the tunnel – and the dark days of inflation at 40-year highs are well and truly behind us.

But based on your bills at the supermarket and the Direct Debits flying out of your bank account, it won’t necessarily feel like it.

Connor Sephton is a journalist based in London. Over his 10-year career, he’s worked as a reporter, editor, and newsreader for Metro, Sky News, and the BBC.

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