Inflation: Food prices see first monthly fall in over two years

The UK's inflation rate remained unchanged in January, despite the first monthly fall in food prices in more than two years, official figures show.

Inflation, which measures how prices rise over time, stood at 4% in the year to January.

The new energy price cap meant the typical annual household bill went up to £1,928, a rise of £94.

However, the price of other items like furniture and food fell, offsetting the increase in the cost of energy.

According to the latest figures from the Office for National Statistics (ONS), prices for food and non-alcoholic beverages fell on a monthly basis by 0.4%, marking the first decrease since September 2021.

Bread and cereals were part of the reason behind the fall, meaning things like cream crackers, sponge cakes and chocolate biscuits were all cheaper.

Crisps, cooking sauces and instant coffee all saw costs easing too.

Overall, food prices are still relatively high, however, with sharp rises seen in the past two years.

Price spikes followed Russia's invasion of Ukraine, which had a big impact on energy prices and grain supplies. Bad weather in Europe and North Africa and labour shortages in the UK have all affected crops too.

The biggest downward push on inflation in January came from furniture and household goods as retailers offered big discounts in a bid to clear the shelves after disappointing sales in the run-up to Christmas.

Meanwhile, the biggest upward contribution came from housing and household services, a category which includes the higher gas and electricity charges consumers have faced since January.

The price for second-hand cars also rose by 1.5% between December 2023 and January - the first rise since last May.

Grant Fitzner, chief economist at the ONS, said that the end result of all this was no change to what is called the headline rate of inflation.

He described the latest figures as a bit of a "mixed bag", speaking to the BBC's Today programme.

Chancellor Jeremy Hunt said: "Inflation never falls in a perfect straight line, but the plan is working."

He said that the government had made "huge progress" in bringing down inflation from its peak of 11%.

Despite the fact the figures on Wednesday beat economists' expectations, inflation still sits far above the Bank of England's target of 2%.

With inflation remaining much higher than this, the Bank has increased interest rates to 5.25%.

The theory is that by making borrowing more expensive, people will have less money to spend. They are also encouraged to save more as saving rates increase. In turn, this reduces demand for goods and slows price rises.

Gareth Jones is the owner of family-run Singleton Jones delicatessen in Warrington Market.

He told BBC News that price rises have been "tough for everybody".

"The price of bread was going up, the price of pies were going up because of wheat, and problems like that. Transport is another one, petrol is going up. It's quick to come up, never comes down quick at all."

He says the price rises from his suppliers put him between "a rock and a hard place".

"If I move my prices up, I've got to sell it to someone. And if you make it too dear, they don't come in."

He's noticed his customers' shopping habits have changed as a result of the cost-of-living crisis.

"The ones that haven't got a lot of money are having to watch it because they're really scraping by because of the price of heating their home, transport, cars."

Myron Johnson, senior personal finance analyst at Interactive Investor, said there is a sense of optimism for the next few months though.

"For many, the cost of living burden on their finances doesn't feel as acute because of a growth in wages, which now outstrips the rate of inflation, on average.

"But many workers haven't been so fortunate and continue to be weighed down by elevated costs."

One key figure that the Bank of England's rate setters will take into account when considering whether or not to cut interest rates is core inflation, which also held steady at 5.1%.

It strips out the effect of items that can be more volatile, such as energy costs, alcohol and tobacco.

By this measure, services rose by 6.1% in the 12 months to January, up from 6% in December.

The biggest movement was in housing services, which includes rent, repairs, sewage collection, house contents insurance, repair of household appliances and council tax.

And while the "headline" inflation figure for January remained unchanged from the month before, prices are still rising.

Shadow chancellor Rachel Reeves made that point in response to the latest update: "Inflation is still higher than the Bank of England's target and millions of families are struggling with the cost of living.

"The Conservatives cannot fix the economy because they are the reason it is broken. It's time for change. Only Labour has a long-term plan to get Britain's future back by delivering more jobs, more investment and cheaper bills," she said.

Separately, Sir Charlie Bean, former deputy governor of the Bank of England suggested the Bank would probably not make a lot of the latest inflation figures.

He said that he would be "very surprised to see the Bank lowering interest rates" until pay growth eases too.

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