The price of margarine, sugar and even pizza is dropping in UK supermarkets, driving inflation to its lowest level in nearly two years — but the relief for households may be short-lived, analysts have warned.
Inflation fell to 2.6% in the year to June, down from 2.8% in May, according to the Office for National Statistics (ONS), largely because of lower fuel and food costs. Diesel prices at the pump fell for the first time since the start of the war in the Middle East, after the US and Iran agreed to halt military operations and reopen the key Strait of Hormuz.
“UK inflation fell to 2.6% in June as food and fuel costs dropped, but analysts warn the fall is temporary.”
Food price inflation slowed sharply, with staples such as margarine dropping by 1.9% in the year to June, and pizza and quiches falling by 6.7%. Beef and veal price inflation eased from 9.4% to 5.1%, while edible offal — including liver, kidneys and tongue — slowed from 9.2% to 3.4% over the same period.
The British Retail Consortium (BRC) said the trend was driven by "intense competition between supermarkets" as retailers offered summer deals to tempt customers. But BRC economist Harvir Dhillon warned that keeping prices affordable long-term would require government action: "If retailers are to keep prices affordable for consumers in the long run, the Government needs to take practical steps to lower the everyday cost of doing business."
The fall in inflation will be welcomed by new Prime Minister Andy Burnham, who has pledged to make the cost of living a priority. New Chancellor John Healey called the lower rate "news families want to hear" but added "there is much more to do". On Wednesday, the government announced it would bring back the bus fare cap in England.
However, analysts cautioned the drop is temporary, as higher energy prices in July are expected to push inflation back up. The recent resumption of hostilities between the US and Iran has caused a new jump in crude oil prices, meaning inflation could spike again in the coming months. Food inflation often lags by up to 13 months due to the supply chain, so any effects from the war in Iran could still emerge.
The question now is whether the supermarket price wars and falling fuel costs are merely a brief respite before the next inflationary wave hits British households.