Period covered: June 24Published: June 03, 2024Read time: 1min

Economic Monitor

Economic Monitor: Inflation falls to 2.3%

The prospects for faster economic growth in the near term have improved, and recovering household incomes following the high rates of inflation seen last year should help to bolster consumer spending over the coming quarters. The BRC Customer Sentiment Monitor for May suggests that most British shoppers feel the economy will get better and will likely continue to grow.

The fall in the Consumer Price Index was less than anticipated, though dropped to 2.3%, not too far from the target rate of inflation. Recent drops in inflation mean higher real wage growth, and tax cuts such as the one to national insurance imply better spending power for the working population, over the second half of this year. However, despite there now being deflation in goods, inflation in services remains elevated.

Oil prices have tailed off somewhat, but the general trend for commodity prices has been upward over the past few months. Fuel prices remain elevated, but other key inputs in food production such as natural gas have eased off considerably. Supply chain conditions nonetheless remain fragile and shipping operators are continuing to divert traffic away from the Red Sea, causing delays in shipping. Shipping costs have now surpassed their most recent peak, since the Israel-Hamas conflict began, adding further upside risks to other commodity prices.