UK Inflation Rises to 2.9%, Food Prices Remain Benign

The UK's inflation rate picked up in July, reaching 2.9% due to rising household energy bills and social rents. However, a closer look at the data reveals a remarkably benign food price trend, with prices remaining flat for the month.

This is unusual, as producer prices suggest that consumer food inflation could potentially even turn negative in annual terms over the next few months. While this may not happen, it is welcome news for the Bank of England's hawks, who consider food prices to be a key factor in setting household inflation expectations.

The overall message from the data is that there is limited evidence so far of the war in Iran having a significant impact on inflation, beyond energy prices. The Bank of England currently expects headline inflation to peak around 3.2% next winter, which is below the threshold for rate hikes.