Bad news for families as inflation reaches 3.8 per cent, driven by the rising cost of essentials

CPI inflation jumped 0.2 percentage points to reach 3.8 per cent in July. Worryingly, the rise was driven by the higher cost of essentials with faster price rises for energy (rising from 4.5 per cent in June to 8 per cent in July), petrol (up by 2p per litre in July) and food (4.5 per cent to 4.9 per cent) intensifying continuing cost of living pressures according to the Resolution Foundation today (Wednesday).

While the increase was in line with the Bank of England’s August forecast it was slightly above market expectations of 3.7 per cent, bringing the rate of inflation to its highest since January 2024. This leaves the UK with the highest inflation in the G7 and increasingly looking like an inflation outlier.

There is some good news, with the rise in energy-price inflation driven by past price falls dropping out of the twelve-month calculation – prices themselves fell 3.8 per cent between June and July.

But the rising cost of food is particularly concerning. Food inflation was higher than forecast by the Bank of England, reaching 4.9 per cent in July. Animal products, coffee and chocolate had the highest inflation rates in July, with beef having an inflation rate of 24 per cent, 18 per cent for both butter and coffee and 17 per cent for chocolate.

These continued rises are particularly worrying in the context of food bank use already being up by 32 per cent compared with 2021-22. It also bad news for the Bank of England given how important food prices are in terms of driving expectations of future inflation.

Finally, the Foundation also notes that, with inflation expected to rise to 4 per cent in the coming months and regular-pay growth slowing to 5.0 per cent in June – down from 5.5 per cent a year earlier – real-wage growth is slowing sharply, making the outlook for living standards a difficult one.

James Smith, Research Director at the Resolution Foundation, said:

“UK inflation looks increasingly like an international outlier as CPI stepped up again in July to reach 3.8 per cent, a nineteen-month high, with a worrying increase in the inflation rate of essentials.

“The rising cost of food is particularly concerning for families as it comes on in the wake of a period of steep increases in the cost of essentials and rising food-bank use. But it is also bad news for mortgagors, as it will most likely slow the arrival of future rate cuts.”