Inflation is down - but the price of your weekly shop is here to stay

Our weekly shop is unlikely to ever return to pre-pandemic levels, with food prices in the UK up by over 38 per cent between November 2020 and November 2025.

Food makes up 11 per cent of the inflation basket and indirectly contributes to higher prices for other goods and services too via restaurants and hotels. Headline figures also don’t capture other price dynamics, for example, how the price of cheaper food options has risen more than similar premium products. Soaring energy and food bills also hit the poorest households hardest, as these essentials make up a larger share of daily spending compared to those on middle and higher incomes.

All while UK workers have suffered a decade and a half of wage stagnation. Although wages have caught up with inflation more recently, it's nowhere near enough to cover price increases that have already happened.

The Bank of England has failed to keep inflation below its 2 per cent target because interest rates are a blunt tool for managing the supply-side issues which have been driving it.

Starting with the impact of the pandemic and Russia’s invasion of Ukraine, domestic energy prices began to rise because we’re tied to international private energy markets, while crop shortages around the world resulting from extreme weather events such as droughts and floods - impacts we refer to as ‘fossilflation’ and ‘climateflation’ - hit food supply chains. To properly address these factors, we need to boost our supply of homegrown renewable energy and invest in the green transition by turbocharging the new National Wealth Fund. The government is making progress on both fronts, but it's not being big or bold enough.

They’ve relied on our central bank to do most of the heavy lifting but the Bank of England’s main tool for fighting inflation has been interest rates, resulting in 14 consecutive rate rises, yet inflation is still above target. Sadly, all higher interest rates have done is saddle people with higher debt, rent, and mortgage payments and hand record profits to the big banks - who have been celebrating by rewarding CEOs with million-pound bonuses this month - including the public footing the bill for £20 billion in interest payments on banks’ risk-free reserves.

In the longer term, we need a monetary policy review to overhaul the relationship between the government and the Bank of England and upgrade the joint tools they have at their disposal to address inflation and fix our economy.

In the short term, to ease the strain on ordinary people, we need the Bank of England to cut rates faster, for the government to take a more active role in tackling bills, and to claw back some billions by introducing a windfall tax on bank profits, to help those suffering most from the ongoing cost of living crisis.

____________________

Hannah Dewhirst is the Head of Campaigns & Communications at Positive Money; a research and campaign organisation working to redesign our economic system for social justice and a liveable planet.

LBC Opinion provides a platform for diverse opinions on current affairs and matters of public interest.

The views expressed are those of the authors and do not necessarily reflect the official LBC position.

To contact us email opinion@lbc.co.uk