Despite a surge in airfares, the UK inflation rate remained steady at 2.2% in the year to August, according to the Office for National Statistics (ONS).
While flight costs rose significantly, they were offset by falling fuel prices and slower growth in restaurant costs.
The ONS noted that these factors helped balance inflation, which is currently just above the Bank of England’s 2% target.
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The inflation rate, although stable, is much lower than during the peak of the cost of living crisis in 2022.
Grant Fitzner, the ONS’s chief economist, explained that August saw large increases in airfares, especially for flights to European destinations, following a dip in prices around the same time last year.
However, declines in fuel prices and reductions in restaurant and hotel costs helped counterbalance this rise. Alcohol prices also dipped slightly, marking a shift from last year when they rose in the same period.
Additionally, raw material costs fell, largely driven by decreasing crude oil prices.
While private rents climbed 8.4% in the year leading to August, house prices rose at the same rate as overall inflation—2.2%—in the year to July.
The surge in airfare prices was particularly striking, with a 22% jump between July and August, the second-largest monthly increase since 2001.
Despite this, motor fuel prices fell by 3.4% over the year, and the costs in the restaurant and hotel sector grew at a slower pace, at 4.4%.
Although inflation has cooled, the government recognizes the toll of sustained high prices on households.
Darren Jones, Chief Secretary to the Treasury, acknowledged that while lower inflation is a positive development, families across Britain are still grappling with the long-term impact of price hikes.
Natalie Jenkins, owner of Moreish restaurant in Shrewsbury, highlighted the continued pressure on businesses, particularly in hospitality, to absorb increasing costs without passing them on to customers.
She expressed concerns about consumers cutting back on small luxuries like an extra cup of coffee or a lunch outing due to higher prices.
Meanwhile, analysts like Danni Hewson from AJ Bell believe there are signs of improvement for consumers, particularly in areas such as fuel and groceries.
She pointed out that August marked the seventeenth consecutive month of falling food inflation, although many shoppers are still struggling with everyday essentials.
This challenge may become more pronounced as colder weather sets in and heating costs rise.
The Bank of England, which previously raised interest rates to curb inflation, is expected to hold rates steady at 5% when it meets on Thursday.
While inflation may rise slightly in the latter part of the year, driven in part by higher household energy bills, the Bank does not expect a repeat of the steep price increases seen in 2022 and 2023.
Economists like Yael Selfin of KPMG UK suggest that while inflation in services remains high, the Bank will likely refrain from another rate cut until its November meeting.
