What is the UK inflation rate 2023? July CPI and RPI explained - what rate means for UK cost of living
The ONS said the reduction in energy bills, which came as a result of the Ofgem energy price cap, was the biggest contributor to the fall in the Consumer Prices Index
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The UK inflation rate tumbled once again in July 2023, the latest Consumer Prices Index (CPI) from the Office for National Statistics (ONS) has shown.
The annual rate of price rises slowed 1.1 percentage points from 7.9% to 6.8%, with most of the drop down to a fall in gas and electricity prices. Energy bills fell significantly from 1 July when the Ofgem energy price cap superseded the government’s energy price guarantee.
As well as being good news to consumers, it will also be welcome news to Rishi Sunak’s Downing Street administration given the Prime Minister has pledged to halve inflation in 2023. But there will be little cheer at the Bank of England, whose job it is to keep inflation at a more sustainable level.
Core inflation - a measure of price rises that strips out categories which tend to rise and fall a lot, like food and energy - remained stubbornly high at 6.9%, while services inflation registered another rise. With the ONS also recording major wage growth in its labour market statistics on Tuesday (15 August), the UK central bank may feel compelled to hike interest rates again next month.
So, what exactly does the ONS CPI for July 2023 mean for you - and what does it mean for the cost of living crisis?
What does inflation mean?
Inflation is an economics measure that shows how much the price of goods and services have risen over a set period of time. In the case of the CPI, the headline time period used is a year - so the figure of 6.8% means prices are 6.8% higher on average than they were in July 2022.
Put another way, the current rate means that something that cost an average of £1 last July is now pretty much 7p more expensive on average. If you go back to July 2022, when inflation stood at 10.1%, a product priced at £1 was 10p pricier. Although this perhaps doesn’t sound too bad, if you scale it up to what is now a £60 supermarket shop, you were likely to be paying just £49.80 for the same basket of food and drink two years ago.
So, this year’s figure has built on what was already a large increase in prices last year. Also, even though the latest figure is lower than June’s data, it still means prices are continuing to rise rapidly on average. At the same time, wages have failed to keep pace with the rate of price hikes.


It is also key to note that the inflation rate is an average for the UK economy. Some average prices in individual categories have risen well above the rate of inflation. For example, the inflation rate for olive oil is a whopping 41.5%.
All western countries use inflation to track how their economies are performing. If the rate is high - as it currently is - it means the cost of living is likely to be rising for people across the UK, which means the value of money is likely to be decreasing. Put simply, the pounds in our pockets aren’t stretching as far as they used to.
At its most basic level, Inflation is influenced by supply and demand. If demand outstrips supply, prices are likely to go up. There are several factors that reinforce this dynamic, the most important of which include:
- Oil prices: higher oil prices make goods more expensive because it costs more to get them from A to B
- Energy prices: higher energy prices make it more expensive to produce goods and services
- Wage increases: the Bank of England says above-inflation pay rises can embed price hikes as they can maintain high levels of demand
- Government policies: major tax hikes can see spending fall, which can reduce prices
The ONS publishes updates on the UK inflation rate every month. These figures have been in the news a lot over the past year because inflation has been climbing at a steep rate - although it is now coming down again.
Why is inflation so high?
There are several big reasons for why inflation ha been so high. These include:
- The war in Ukraine: global food prices have been driven up as Ukraine is a major producer of important ingredients, like grain and sunflower oil.
- Sanctions against Russia: western sanctions against Russia and retaliatory sanctions from President Vladimir Putin have thrown energy and fuel supplies into doubt. This has sent global prices soaring as Russia is a major source of oil and gas (and the UK is especially reliant on imported gas).
- Global post-Covid recovery: after countries restarted their economies in the wake of Covid-19 lockdowns, demand for fuel and energy surged - this started the inflation crisis but is now no longer present in the inflation data.
- Brexit: the UK’s exit from the EU has created supply chain bottlenecks, reduced the supply of some goods and increased the country’s vacancy rate (which can drive wages higher as employers compete to recruit staff).
A lot of the reason why inflation has been falling, particularly in the last few months, is that most of these price hike drivers have dropped out of the data (largely because inflation is an annual measurement and their respective price shocks happened more than 12 months ago). The one that economists believe is continuing to linger in our data is Brexit.
What are CPI and RPI?
The ONS has two main measures for inflation - the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). The CPI has been the official measure since 1996 and is calculated using a typical basket of goods and services that the UK frequently consumes.
This basket is weighted so that goods that are important to most households, like milk, have a greater influence over the headline inflation figure than luxuries, such as smart watches.
The September CPI is used by the government to determine levels of state support, including benefits and the state pension, which then kick in from the following April. However, ministers are not legally bound to raise these national payments in line with inflation in this way.
CPI inflation also allows economists to make international comparisons. At present, the UK continues to be one of the worst-hit countries in the Western world.
However, the rate is not a perfect indication of inflation in the UK as it omits some key costs. For example, council tax - which was hiked by almost 5% for millions of households in April - is not included in the CPI. It also does not include disparities between different socioeconomic groups (more on that below).
RPI was the official yardstick for inflation during the 20th century, and is now calculated so that the UK can see how current rates compare historically. But it is still used to determine how prices should change for important things like train tickets and phone contracts.


It tends to track higher than CPI because it includes mortgage interest payments. This means it is impacted by house prices, which have been rising for many years - especially in 2022. The RPI for July 2023 fell from 10.7% to 9%.
What does current inflation mean for cost of living?
Whichever yardstick is used, both the CPI and RPI show that the UK cost of living has generally become much more expensive over the last 12 months. Prices have been climbing at such a steep rate that wages have not kept pace, which means we all have less disposable income. And with the real-terms value of the pound having dropped, our savings have also been eaten into, which means anyone saving up for a deposit on a house is
According to progressive think tank the Resolution Foundation, the situation is even worse for the UK’s poorest tenth of households as they have seen inflation that is 2% higher than that experienced by the tenth richest households. People on lower incomes are more adversely affected because they spend a greater proportion of their money on necessities, like food and energy. The think tank estimates food costs make up 14% of a poorer household’s income, compared to 9% for a richer household.
In the latest data, food inflation slowed down again - albeit to a still-high rate of 14.8%. But the biggest contribution to the fall in the headline rate came from energy costs. Electricity price inflation fell from 17.3% to 6.7%, while gas dropped from 36.2% to 1.7%. While these statistics are better than they have been, prices are still higher for consumers than they were a year ago (much higher in the case of food).
There are signs consumer purchasing power is on course to be on a par with inflation at some point in the coming months. The ONS’s labour market statistics show regular pay grew 7.8% between April and June. Although this still amounted to a real-terms drop of 0.6% when inflation was taken into account, it raises the prospect that we could start to claw back some of the losses we’ve made over the last 18-months in the near-future.
But the fact that wages are growing, combined with high core inflation and rising services inflation, means interest rate-related costs could keep rising. The Bank of England has a target of keeping the country’s inflation to 2% - something it manages using these rates. Keeping inflation at 2% is viewed as a good thing by many economists, as they believe it encourages people to spend what they have today, rather than see it go up in price tomorrow.
If the Bank believes inflation is likely to remain elevated due to the factors above, it will continue to hike interest rates. As a result of the latest data, economists expect a hike in the base rate to 5.5% is now nailed on for September, when the next announcement is due.