The Office of National Statistics’ (ONS) new inflation figures are now out for August 2025. The banner headline is that inflation overall has held steady at 3.8%, far above the Bank of England’s 2% target. Food prices have also continued to spiral upwards ahead of that rate. Moreover, this 3.8% increase is significantly higher than those predicted for other major nearby economies like Germany and France.
The Consumer Prices Index (CPI) increased by 3.8% from August 2024 to August 2025. The CPI measures how the costs of common goods and services that most people need – things like food, transport, recreation, and electronics – change over time. It serves as the main measure of inflation overall in the UK.
Food and drink
However, food and non-alcoholic drink prices rose by 5.1% for the year. This included far bigger increases for some very basic products. Coffee and chocolate prices both rose by 15.4%, dairy products like milk and butter rose by 12.6 and 18.9% respectively, and the price of beef rose by a whopping 24.9%.
Supermarkets blamed a multitude of factors for the continual increases. These included the climate crisis and the combination of a wet Spring and dry Summer in the UK driving up the cost of basic goods, along with the ongoing war in Ukraine – previously a primary producer of grain for Europe.
Alongside these rises, supermarkets and suppliers also complained about April’s rise in minimum wages and national insurance contributions. It would appear that these costs to producers and retailers have been passed directly to the consumer – and then some, in some cases.
For example, Tesco posted an adjusted operating profit increase of 10.6% for 2024-2025. Likewise, Sainsbury’s underlying operating profit rose by 7.2% for a similar period. Both of these profit increases are far ahead of the average 5.1% increase in food prices. Both Tesco and Sainsbury’s were also guilty of above-inflation price gouging during the pandemic, as revealed in a 2023 investigation by Unite.
So what gives?
So if food costs are rising above inflation, what exactly is keeping the overall increase of the CPI basket steady?
The ONS stats also showed that average house prices in the UK in July had increased by 2.8% compared to July 2024. That’s down from a 3.6% price growth from June to June. However, private landlords’ rent increases rose by 5.7% August to August. That’s the smallest annual increase since December 2022, but still well above general inflation,
Prices in transport also rose overall by just 2.4% in the year up to August 2025. Air fares made a significant downward contribution to this rate, and petrol and diesel prices fell by 4.9% in the same period, compared with a greater fall of 6.7% July-July.
Overall
So what does this mean overall? As ever, it is the poorest people in the UK who will feel the brunt of changing prices. The fact the air fares are increasing slower will mean little to you if you don’t regularly leave the country. Rising rates of private renting are far more significant if you’re not in a position to buy a house. And, of course, the cost of the most basic foods rising at sometimes as much as six times general inflation will sting if you regularly struggle to buy groceries.
Chancellor Rachel Reeves said:
I know families are finding it tough and that for many the economy feels stuck. That’s why I’m determined to bring costs down and support people who are facing higher bills.
Usually, the Bank of England (BoE) seeks to curb inflation by increasing interest rates. Interest rates account for both the cost of borrowing money and the gains from saving it. The logic goes that if borrowing goes down and saving goes up, then spending will go down, meaning that prices will fall, thereby lowering inflation.
So, with inflation holding at 3.8%, experts are predicting that the BoE will keep interest rates fixed at 4%. However, Paul Nowak – general secretary of the Trades Union Congress, has warned that this won’t help the average family:
Global challenges mean food costs keep rising. Higher inflation is also being driven by water and energy bills rising. Keeping interest rates high will not bring down these prices – but instead, rates are adding to the pain for families and businesses.
The Bank of England should cut interest rates tomorrow to ease pressures on households and businesses. This will help to boost growth and make life more affordable for everyone.
Autumn budget
A lot now hinges on the chancellor’s Autumn budget, set to be released on 26 November. Reeves faces a very difficult balancing act. Increased minimum wages and NI contributions from employers were popular among low-wage workers, but big businesses immediately foisted those costs onto consumers.
Last year, Reeves promised businesses that she wouldn’t hike taxes further – however, there is now widespread speculation that she will do just that, amid reports of falling productivity forecasts. If businesses once again pass these costs directly to consumers, it could spell disaster for the poorest among us.
Featured image via Unsplash/Krzysztof Hepner
This post was originally published on Canary.