Inflation falls to 6.7% - what does it mean for your household budget?

The rate that prices are rising has unexpectedly fallen again bringing more relief for household budgets, with economist now predicting that it’ll tumble to around 5% by the end of the year.

The Consumer Prices Index, which tracks the average price of goods bought by UK households, fell by 0.1% to 6.7% in August.  

That’s lower than experts predicted – many believed it would creep back up in August to around 7% due to wage rises.

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

The fall will ease the pressure on the Bank of England to raise interest rates when it meets again tomorrow.

The surprise fall was helped by restaurants and hotels which fell in price in August driven by cheaper overnight hotel accommodation.

And even though food and non-alcoholic drink prices increased a little in August, it was at a lower rate than this time last year.

All those factors together has led to the slight drop in the inflation figure.

 

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 tomorrow (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.