ICAEW chart of the week: Inflation by month

My chart this week looks at how September’s inflation rate of 6.7% is made up by month, and why a big drop in the annual rate is predicted next month.

Inflation by month

Step chart showing monthly inflation from October 2022 to September 2022 adding up to annual inflation of +6.7% for the year to September 2023.

Oct 2022 +2.0%
Nov 2022 +0.4%
Dec 2022 +0.4%
Jan 2023 -0.6%
Feb 2023 +1.1%
Mar 2023 +0.8%
Apr 2022 +1.2%
May 2023 +0.7%
Jun 2023 +0.1%
Jul 2023 -0.4%
Aug 2023 +0.3%
Sep 2023 +0.5%

Year to Sep 2023 +6.7%

19 Oct 2023.
Chart by Marin Wheatcroft FCA. Design by Sunday.
Source: ONS, 'Consumer price inflation, UK: September 2023'.

The Office for National Statistics (ONS) reported on 18 October 2023 that the annual rate of consumer price inflation (CPI) for the year to September 2023 was 6.7%.

Our chart this week illustrates how this is made up of monthly inflation rates from October 2022 through September 2023 of +2.0%, +0.4%, +0.4%, -0.6%, +1.1%, +0.8%, +1.2%, +0.7%, +0.1%, -0.4%, +0.3% and +0.5% respectively.

As well as highlighting how the monthly inflation rate can bounce around from month to month, including a couple of times where prices went down, it shows how a big jump in the consumer prices index of +2.0% in October 2022 is a significant component in the annual rate reported for the year to September 2023.

This provides an insight into what is likely to happen to inflation when it is reported next month. Instead of a large rise in domestic energy prices (a 17% increase in the cost of electricity and a 37% increase in the cost of domestic gas between September and October 2022 according to the ONS) that drove the +2.0% reported a year ago, the expectation is that energy prices will drop between September and October 2023 following Ofgem’s decision to reduce the energy price cap by 7% for the current quarter.

When the +2.0% monthly increase from October 2022 drops out of the index to be replaced by a much smaller monthly increase for October 2023 (or even potentially a monthly decrease), the annual rate of inflation should reduce significantly – potentially to as low as the 5.3% ‘halved’ rate of inflation aspired to by the Prime Minister.

For a broader insight into the UK economy, read ICAEW’s economic update October 2023: where next for interest rates?

This chart was originally published by ICAEW.

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