Benign Food Prices Keep UK Inflation in Check

According to recent UK inflation figures, headline inflation has risen by three-tenths of a percentage point to 2.9%, driven mainly by increased household energy bills and social rents. However, what's striking is that food prices have remained remarkably stable, with a flat reading on the month.

This benign trend in food inflation is unexpected, given previous dips in monthly terms. Producer prices suggest consumer food inflation could even turn negative in annual terms over the next few months, although this is not predicted to happen immediately. It will take at least a year for the full effects of the Iran War to show up.

The news was less welcome on services inflation, which dipped to 3.4% mainly due to low air fares readings. However, when stripping out volatile categories, the Bank of England's preferred core services metric actually increased slightly. Overall, there's little evidence that the war in Iran is having a tangible impact on inflation.

ING expects headline inflation to peak around 3.2% next winter and remains optimistic that the Bank of England will keep rates on hold this year before resuming rate cuts next spring.