Sharp inflation fall sends CPI to its lowest level since 2021 – but scale of two-year inflation shock has left a legacy of far higher prices

CPI inflation fell by more than expected to 4.6 per cent in October – its lowest level since October 2021, and the largest annual fall in more than 40 years. But with overall prices rising by 16 per cent over this two-year period, and energy costs rising by 49 per cent, families are still feeling the effects of this huge inflation shock, the Resolution Foundation said today (Wednesday).

CPI inflation fell sharply last month, as last year’s surge in energy costs fell out of the figures. But while a big fall was expected, the size of the fall is welcome news in the battle to tame inflation. As well as easing cost of living pressures, the sharp fall will reassure policy makers that higher interest rates are having their effect on cooling prices.

However, while inflation has fallen rapidly, the effects of a two-year inflation shock have left a legacy of far higher prices. The Foundation notes that the overall price level has risen by 16 per cent between October 2021 and October 2023, while energy costs have surged by 49 per cent, and food bills by 28 per cent. Over this same period, average weekly earnings have risen by just 14 per cent.

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

“Inflation fell at its fastest annual rate in over four decades last month, as last year’s surge in energy bills fell out of the data.

“Such a sharp fall will be welcomed by policy makers and the wider public alike. But the cost-of-living crisis is far from over as the scale of Britain’s inflation shock has left a legacy of far higher prices.

“Over the past two years, the cost of energy has surged by 49 per cent while food prices have risen by 28 per cent – far greater than the 14 per cent in average earnings over this period.

“The sharp rise in the cost of these essentials mean that lower-income households have experienced the biggest inflation shock, and shows the very real risks to their living standards if the Chancellor does not fully uprate benefits in line with prices to maintain their real-terms value.”