Inflation at 2.1%: The Number and What It Doesn't Tell You

Inflation at 2.1 per cent is good news. Let's be clear about that. Two years ago, it was running at more than 11 per cent. The Bank of England's campaign to bring it down has worked. Financial markets are pricing in a rate cut. The government is claiming credit. Some of that credit is deserved.

Here is what the number doesn't tell you. Inflation at 2.1 per cent means prices are still rising, just more slowly. The cumulative effect of three years of elevated inflation is that the average household is paying substantially more for almost everything than it was in 2021. Energy, food, housing, insurance — all are higher. The fall in the rate does not undo any of that.

The Cumulative Effect

Consider food. Supermarket data suggests that the average weekly grocery bill for a family of four is still roughly 18 per cent higher than it was in 2021. The shift towards own-brand products that began during the crisis has not reversed. Shoppers have adapted, but the adaptation has a cost — not just financial, but in the choices that are no longer available.

Energy costs remain the most significant pressure point for lower-income households. The energy price cap has fallen from its peak but remains above pre-crisis levels. The government support schemes that helped households through the worst of the crisis have ended.

Who Is Recovering

Real wages are rising in aggregate. But the distribution of those gains is uneven. Higher earners and workers in sectors with strong wage growth — technology, finance, professional services — have seen real wages recover. For workers in lower-paid, less secure employment, the picture is more complicated.

"The aggregate figures look better. The question is whether the aggregate is a useful description of what most people are experiencing." — Economist, Resolution Foundation

What the Rate Cut Will Do

A Bank of England rate cut would help. Lower borrowing costs would reduce the burden on variable-rate mortgage holders and, over time, on consumer credit. The pass-through is slow, but it is real.

What it will not do is address the structural issues: housing costs, childcare, the state of public services. Those require political decisions. The inflation figure is a piece of good news. It is not the whole story.