Fuel leads drop in prices, says ALEX BRUMMER

Here’s a scoop. A letter arrives from my fuel supplier British Gas informing me that my monthly direct debit is being reduced from £366.74 per month to £172.49.

I am not naive enough to think that the message is due to the kindness of British gas owner Centrica and I realize that our household may have overpaid and a rate adjustment was required.

Nevertheless, it represents a major change of direction after the 2022 gas price spiral following Russia’s war against Ukraine. Since then, the government, the Bank of England and everyone else have been happy to blame inflation for the exceptional nature of the United Kingdom.

Britain imports about 50 per cent of its gas and we are at the end of a long supply chain. As a result, high energy prices pierced the nerves of the economy.

Overall consumer price inflation, which stood at 8.7 percent in May, was bad enough. But core inflation, which excludes energy and food, has also proven persistent because so many of the goods and services we use have embedded energy costs.

The reality is that gas prices have been shockingly falling for some time now, with the Office for National Statistics reporting a 3 percent drop in the system average price (GSP) over the past week. Electricity prices are 58 percent lower than around the same time last year and gas 64 percent lower.

Falling fuel costs, as the world adjusted to the closure of Russian pipelines to Western Europe, was the main reason for optimism among officials that inflation would fall quickly in the spring.

At the time of the March budget, senior Treasury sources predicted a 5 percentage point cut by the summer. The Bank said it was an arithmetic security. Progress should be seen on Wednesday when June consumer prices are revealed.

But no one should deceive themselves that the Bank’s string of 13 consecutive rate hikes will have done the job and that, in line with the US, the UK will soon see a dramatic fall in annual consumer prices of up to 3 percent.

Britain is not energy self-sufficient like our American friends. By raising taxes on oil in the North Sea to 75 percent (opposition parties want to go further) and by viewing new exploration and production in coastal waters as a threat to a carbon-free future, this country has engaged in an act of self-defense. sorrow.

The UK’s energy insecurity created room for skyrocketing prices to embed. The Competition and Markets Authority’s report on petrol and diesel at the filling stations found that prices were kept at an abnormal level to support profits.

Sustained profit margins in the supply chain for goods and in the services sector point to inflation among sellers.

Don’t take my word for it – both the International Monetary Fund and the European Central Bank’s Christine Lagarde say much the same thing. The British spin on this is the 1970s concept of a wage-price spiral reinforced by a shortage of skilled labour.

The most recent data shows that the average regular wage in the private sector increased by 7.6 percent in the three months to May. In the public sector, the government has passed a 5 to 7 percent recommendation from wage review bodies amid disruptive union action.

Wage growth is displacing energy as inflation’s biggest scapegoat. The distorting effects of monetary policy by keeping interest rates at 0.1 per cent for so long and printing £895 billion of money was a foolish mistake.

Projections of a significant drop in the overall cost of living recently made have turned out to be wrong. If my household energy bill is any guide, the only way down is with a bump.