The inflation rate rose to 2.3% in October, well below the level at which it peaked two years ago. But you would be wrong to think that the cost of living crisis is over.
At the call center for energy company Utilita in Hampshire, on a bitterly cold day earlier this week, I witnessed the cost of living pressures on the frontline.
At 10am, red lights flashed on a map of Britain as prepayment meters ran out of money, and the company extended 'friendly credit' to avoid disruption in the middle of at night.
A mother whose children needed refrigerated cancer medicine called with a broken voice because she couldn't afford her £5 prepayment top-up and asked to be put on direct debit credit. An older customer refused to turn on their heating or use hot water and shouted at the operator.
The harrowing stories come as energy bills rise during what could be a cold winter for the first time since the peak of the energy crisis when Russia invaded Ukraine more than two years ago.
Britain and Europe have been very lucky with two mild winters since the energy crisis.
But now the temperature is cooling at a time when most additional government aid has been withdrawn.
This is a clear example of why inflation is not quite the same as the cost of living.
The peak of energy inflation is behind us, even with the current increase. The inflation rate will not rise to double digits. But the cost of living crisis could be about to hit harder than ever.
Not surprisingly, the inflation rate has jumped again, reflecting the recent rise in energy price caps.
The news today is that other underlying measures of inflation, for example services and “core” inflation, both closely monitored by the Bank of England as an indicator of pressures on domestic prices, both increased slightly, and more than expected.
It comes as a growing number of businesses warn that tax rises and a minimum wage increase announced in the Budget could lead them to raise prices for customers.
In January, Donald Trump comes to power as President of the United States, threatening to impose blanket 20% tariffs on all imports into the United States.
Putting all this together, inflation could rise until the spring of next year, close to 3%.
But the future path of inflation is unusually uncertain and Bank of England officials, who decide whether to raise or cut interest rates, are divided.
Four of the nine members of the monetary policy committee said Tuesday that it was unclear whether price increases would accelerate or slow down in the coming months. Much depends, as many Bank of England members have suggested, on whether fiscal measures pass through to prices and wages.
Bank of England Governor Andrew Bailey reiterated earlier in the week that future interest rate cuts would be “gradual”.
This will likely mean a cut in interest rates at every other Bank of England meeting – so nothing next month, but a further cut in early February.
If trends continue as expected, there may be a pause in March. By May, much more data will be available on how wages and prices have changed since the October budget changes.
To be clear, recent developments have not fundamentally changed expectations for a series of rate cuts next year, but perhaps by the end of 2025 rates will be around 4% versus to their current 4.75%, rather than previous expectations that they would be lower.
Beyond that, it is possible that if the geopolitical situation calms down, over the course of this year gas prices will fall significantly. That’s a very big “if,” but it weighs on the minds of energy providers.
But whatever happens, the winter is going to be very tough if my afternoon in this call center in Hampshire is anything to go by.
