Cost of Living: Why a new path to inflation could help the UK avoid a deep recession | Business newsletter

It can still be as close as you can get to double figures.

It may still be heading higher still. It may be squeezing households across the country, but watch out for some good news on Wednesday. inflationary data.

For the first time in a long time, not only did the rate of price growth (and ultimately inflation) decrease between July and August (from 10.1% to 9.9%); it fell more than economists had expected (they predicted 10% on the node).

There’s no point in overdoing this, but with almost every month of the past year inflation has been higher than expected, it’s worth noting when the opposite happens.

You can summarize the explanation of why inflation is falling in two words: the price of gasoline.

The cost of refueling your car with unleaded gas fell sharply (from an acknowledged record) in August. That alone caused 0.4 percentage points of the drop. In other words, not because transportation costs decrease, the rate of inflation will increase, not decrease.

And it’s worth surviving, because when you remove the volatile components of the “shopping basket” of inflation, the “core” inflation, as it is sometimes called, is still rising, reaching high levels. most in decades.

An alternative measure of core inflation compiled by the National Institute of Economic and Social Research rose from 7.2% to 7.8% in August.

And even the most optimistic economists expect inflation to pick up again in the coming months.

Liz Truss’s energy price guarantee won’t prevent another huge spike in bills in October, even if it does prevent them afterwards.

So expect inflation to pick up again this fall, possibly to 11% or higher.

However, while many economists see it skyrocketing even further, reaching nearly 20% by the middle of next year, the energy reassurance will hopefully mean inflation easing in the first months of next year and falling back down. “normal” levels by 2024 or maybe even late 2023.

This is a big broblem; a very big thing. It will also come with a heavy price, although we don’t quite understand how much – partly because the government has yet to release any numbers on it and partly because the cost really isn’t. can be known in advance.

It will largely depend on what happens in Ukraine in the coming months and whether Russian gas continues to flow to Europe. In that respect, it is worth noting that wholesale gas prices have fallen quite sharply in recent days amid news of the successes of the Ukrainian army in the east of the country.

Even so: that energy price is still a lot higher than it was before the war. The same goes for costs across the UK economy.

This brings us to a deeper problem. At some point, the rate of price increase will actually slow down. But just because inflation is down doesn’t mean that price level will fall. In other words, a 10% increase in the past year doesn’t mean your grocery costs will drop 10% afterward. As a result, the impact of this squeeze is likely to remain intact, and stifle economic growth, for some time to come.

The good news, however, is that things look significantly less bleak from an economic perspective than they did just a few weeks ago. The UK is still slowing down. It will almost certainly fall into a technical recession, although it will be quite difficult to separate the impact of extra bank holidays on Jubilee celebrations and the Queen’s funeral from the potential decline.

But while economists have recently predicted a deep recession, it’s entirely possible the UK avoids it – thanks in large part to the reassurance in energy prices.

If there’s one thing we should learn from the past few years, it’s that the future is inherently unpredictable. However, that future is not always a scary future. The coming months will be difficult for many families – especially many already struggling to pay their bills. However, it seems less difficult than it could have been.