Rishi Sunak Gets A ‘Win’

Headline inflation in the UK plunged in October, data released on Wednesday showed.

The moderation in the 12-month CPI rate from 6.7% in September to 4.6% last month counted as the largest in over three decades.

October’s annual pace was also the slowest in two years.

There’s a (very) long way to go yet, but with this preordained decline in hand, the UK no longer looks so anomalous among developed markets from an all-items perspective, even as core price growth remains almost triple target.

Note that I described the drop as “preordained.” This was expected. Guaranteed, actually. It’s just gas prices showing up (or down, if you like) in energy bills. “Last year’s 25% increase in household energy bills has dropped out of the annual comparison, while electricity/gas prices fell by 7% in October this year,” ING’s James Smith remarked.

The following passages, pulled directly from ONS, tell the story:

Housing and household services prices fell by 0.3% between September and October 2023, compared with a rise of 3.4% between the same two months a year ago. This resulted in an easing in the annual rate to 1.9% in October 2023, down from 5.7% in September and a peak of 11.8% in January and February.

The decrease in the rate between September and October 2023 reflected downward effects from gas and electricity. Gas costs fell by 31.0% in the year to October 2023, compared with a rise of 1.7% in September. This is the lowest annual rate since records began in January 1989. Electricity costs fell by 15.6% in the year to October 2023, compared with a rise of 6.7% in September. This is the lowest annual rate since records began in January 1989.

Although electricity and gas prices have fallen on the month and the year, their prices are still high in comparison to recent years. The price of gas in October 2023 was around 60% higher than it was in October 2021 while the price of electricity in October 2023 was around 40% higher than it was in October 2021.

So, no, the situation isn’t “fixed.” Not by any stretch. You’re only better off if you were born yesterday (figuratively and almost literally).

Although food prices barely rose from September to October, the annual rate remains in the double-digits, at 10.1%.

The annual rate of goods inflation dropped from 6.2% in September to 2.9% in October. That rate accelerated in the wake of Russia’s Ukraine misadventures, rising double-digits for 12 months straight following the invasion.

The largest negative contribution to the drop in goods inflation obviously came from energy, where prices fell 16% YoY.

As the simple chart makes clear, core and services inflation remain very problematic. The latter ran at 6.6% last month, the slowest pace since March and below estimates, but nevertheless frighteningly high. Core price growth, at 5.7%, was the first five-handle print since January but the same caveat applies: It’s nowhere close to acceptable.

Wednesday’s figures probably ruled out another BoE hike. The bank kept rates steady for a second meeting earlier this month following 14 consecutive increases through August.

Cringeworthy though this is in the context of a cost-of-living crisis with no modern precedent, Rishi Sunak was compelled by political expediency to declare victory Wednesday. Sunak promised to cut inflation in half by year-end. He’s now achieved that goal.

“While it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle,” he said.


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