In the News Teaching Activity – inflation remains at 2.2% but core inflation is up (Sept 2024)

Why has consumer price inflation stayed just above target at 2.2%?

Inflation in the UK held steady at 2.2% in August, matching July’s rate, thanks to falling petrol prices balancing out higher airfares. Despite easing from earlier highs, inflation remains slightly above the Bank of England's 2% target. Core inflation rose to 3.6%, driven by services like airfares, keeping pressure on household budgets. While some call for rate cuts to boost growth, experts predict the Bank will hold steady due to persistent service-sector inflation, with markets predicting just a 26% chance of a base rate cut. Consumers are tightening spending on non-essentials. (The Bank did hold the base rate at 5% as anticipated in this article).

UK inflation stays at 2.2% as lower petrol prices offset by higher air fares | Inflation | The Guardian

1. Explain the difference between the headline rate of inflation and core inflation.

2. What is the role of the Bank of England’s monetary policy committee?

3. Discuss why inflation staying above the 2% target reduced the expectation of a base rate cut by the Bank of England.