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Inflation is falling, but will that make a difference?

Prime Minister Rishi Sunak leaves number 10, Downing Street  (Photo by Dan Kitwood/Getty Images)
Prime Minister Rishi Sunak leaves number 10, Downing Street (Photo by Dan Kitwood/Getty Images)
The headline fall in price rises has been championed as good news by Rishi Sunak. But Brits may feel somewhat less cheerful about inflation.

Rishi Sunak has put an improving economy at the forefront of his election campaign, warning voters that a vote for Labour is a vote to throw away what progress has been made since he took office in autumn 2022.
It was clearly not a coincidence that the election was called on the same day that inflation hit its lowest level in nearly three years.

A video was quickly released showing Sunak annotating a comically large graph which showed inflation falling from over 11 per cent when he took office to 2.3 per cent last month.
It has already been noted that the news on inflation was not as good as Sunak has tried to make it sound. Before April’s inflation figures were released the odds of a June interest rate cut were about 50-50. There’s now only a 10 per cent chance of a June cut.


But still, it’s not a huge surprise that Sunak is leading his election campaign with his inflation record. After all, it is the only one of his five pledges he has unambiguously met.
But it bears repeating again and again: Sunak played almost no role in getting inflation down to 2.3 per cent.
What progress there has been on inflation has been caused by the unwinding of the massive price shocks which followed the pandemic and the Russian invasion of Ukraine.

The Bank of England’s interest rate hikes have also clearly had a role to play, although it’s unclear how much of a role. What is clear is that this was not government policy. The Bank of England is independent and its decisions are not affected by political considerations.
The only way Rishi Sunak can be said to have helped bring inflation down is by not being Liz Truss, whose mini-budget alongside Kwasi Kwarteng might have sent inflation out of control.
In other words, only a truly monumental act of stupidity could have prevented Sunak from meeting his inflation target.

Unfortunately, the focus on inflation falling is a damning indictment of what else there is to say about economic progress over the past two years.
His signature economic achievement – the thing he feels most comfortable talking to voters about – was a result of government inaction. Inaction won’t cut it over the next five years.

Aside from the fact that the government had nothing to do with its core economic achievement, there’s another problem with putting the inflation target at the heart of the campaign pitch – it misunderstands how voters experience inflation.

For economists, the UK’s inflation chart is taking an increasingly reassuring shape, with the sudden surge in inflation looking as if it will disappear as fast as it arrived.
For consumers, however, the graph looks very different: one long rise. Of course it is gradually slowing, but the rise shows no sign of going into reverse. Since March 2021, overall prices have risen by 22 per cent, 15 per cent higher than had inflation remained at its two per cent target.

Wages have increased quickly too, meaning many workers are experiencing their first real wage increase in years, but household disposable income will not recover to its pre-pandemic level until 2025-26.
The impact of this recent bout of inflation will be felt for months yet. Indeed, last week’s retail sales and PMI both showed how the lingering impact of inflation continues to impact consumer spending.

The danger for Sunak is that by claiming some sort of responsibility for getting inflation down, he might be seen as responsible for the rise of inflation in the first place.