Base effect will only begin to ease UK inflation in April, the ONS says.
There will be little in the way of a cost-of-living respite for UK consumers in coming months, with any major easing in inflation unlikely until base effects kick in in April 2023, the Office for National Statistics told MNI Wednesday,
Even on the assumption that monthly increases flatline from here on out, the annual inflation rate will decline only very modestly through the summer and autumn, and could see a significant uptick in October as the next round of higher household energy costs kicks in, spokesperson for the national record keepers said.
That fits in with the Bank of England’s latest inflation forecast, published in May, which -- on currently projected market interest rates -- sees inflation peaking at around 11% in Q4 2022 and then falling to around 6.5% in Q2 2023, 3.5% at the end of 2023 and to 2% by mid-2024.
Prices in the UK have, more-or-less, increased steadily each month since early 2021, the ONS noted, with the largest rises, 2.5% m/m, recorded in April this year when consumers were hit by higher energy prices.
That would mean that April 2023 would be the first month to see a significant m/m downward move due to base effects – again given the caveat of flat m/m inflation from here on out.
Statisticians note a similar profile for producer prices, or factory gate inflation, with the first big downside impact from base effects likely in March 2023 for input prices (5.0%) and April for output prices (2.8%).
Declining energy prices in coming months could help ease headline prices, but they will be fighting the base effects until spring 2023.
The latest inflation data, published on Wednesday, showed annual CPI running at a 40-year-high.
Source: ONS for MNI
The chart above, produced for MNI by the ONS, illustrates the point, with the darkest black line showing the profile of price movements through 2021, then the dashed blue line showing the sharper rises in 2022, particularly in April. There’s been upward movement through most months over the last year, so 0% monthly growth from now would see a gradual reduction in the annual rate. However, April 2023 would see the rsingle largest reduction due to base effect.