Inflation may be slipping but there is still plenty of misery ahead
Inflation may be a little lower than last month as the prices of petrol and diesel fall back, but it remains structural and long-term, says Merryn Somerset Webb. And there are no painless solutions.


Remember how last year we were told by every single self-important central banker in the West that inflation was nothing to worry about? It was, they said, mainly driven by short-term rises in energy prices and would be gone by 2022. Transitory, you see. Not structural at all.
Good news: they were right. Some of the inflation we have been seeing has been transitory and short-term. Bad news: they were totally wrong. Much more of it is structural and long-term. Look at the consumer price index (CPI) numbers out from the US and the UK this week and you will see the story in the detail. In the US, prices are up 8.3% in the year to July. That’s a little lower than last month, thanks to the fact that the transitory bits (oil and petrol) are falling back. But look to the rest and you can see that overall inflation is pretty broad-based.
Median CPI inflation (the number that omits big swings in any direction) came in at 9.2%. That tells us that we can’t just blame US inflation on a few things (such as chips and used cars). Instead, more prices are on the up than not, and the supply side is still very tight. Even now, there are two job openings per unemployed worker in the US. That is why most commentators now expect the Fed to put rates up by 0.75 percentage points next week (it has to be seen to be catching up with inflation); why the market fell so much when the numbers came out (expensive stockmarkets hate higher interest rates); and why the Nasdaq is down 26% this year.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
No painless solutions to high inflation
The dynamic is much the same in the UK, where CPI inflation has fallen back from last month’s 40-year high to 9.9%. That sounds nice (it can’t be described as “double digit” any more), but there is plenty of misery embedded in the numbers. Food prices have jumped by more than at any point since 1995 (up 13.3% in the past year). Services and core inflation remain stubbornly high and unemployment bizarrely low (3.6%) – with the slight fall in it this month being largely down to drop-outs from the long-term ill (no medals to the NHS for this one).
There are no painless solutions to all this. The only people sort of winning here – or getting close to having a chance of breaking even at least – are those in receipt of the state pension. The triple lock (which Liz Truss has pledged to reinstate) looks likely to see a “record breaking” rise next year, says Hargreaves Lansdown. So that’s something.
Sadly there is another group who may soon see record-breaking rises: mortgage holders – the average rate on a two-year fix is set to have quadrupled between late 2021 and 2023. This brings me neatly to house prices. The latest numbers from the ONS showed prices rising by 15.5% in the year to July. That’s the highest number since 2003 and pushes the average house price (caveat: there is no such thing as an average house) up to just over £292,000.
This is not quite as nuts as it seems. The rise reflects the end of the stamp duty holiday in June last year rather more than it does solid fundamentals in July this year. Buy a house today and we suspect you should do so in the knowledge that your mortgage rate is almost certain to rise and, unless something very odd happens, the value of that house is fairly likely to fall.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Top 10 areas with the biggest inheritance tax bills – is your town on the list?
People in some of the wealthiest parts of London pay the most inheritance tax – but there are a few areas outside the capital where big bills are paid when a loved one dies
-
Inheritance tax reform ‘largely protects family farms’ – what are the alternatives?
Independent analysis of the government’s inheritance tax reforms has found eight out of 10 farming estates will be able to pay their IHT bill without having to sell off parts of the farm
-
UK wages grow at a record pace
The latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie government
It’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debt
The downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growth
Gross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%
The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK inflation remains at 8.7% ‒ what it means for your money
Inflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
Would a food price cap actually work?
Analysis The government is discussing plans to cap the prices of essentials. But could this intervention do more harm than good?
-
Is my pay keeping up with inflation?
Analysis High inflation means take home pay is being eroded in real terms. An online calculator reveals the pay rise you need to match the rising cost of living - and how much worse off you are without it.