So much for 2% inflation on the horizon...

Fresh inflation data suggests there may be some relief for shoppers at last — but hopes of a smooth return to the Bank of England’s 2% target still look fragile.

When the Bank of England met in early February this year, the summary of the meeting said: “Although above the 2% target currently, consumer price index (CPI) inflation is expected to fall back to around the target from April, owing to developments in energy prices, including from Budget 2025.”

At the time, the focus was not on oil markets or geopolitical instability. The Bank was looking ahead to the reduction in the domestic energy price cap from 1 April, following Rachel Reeves’ decision in last November’s Budget to shift some renewable energy costs from household bills to general taxation for three years.

The Chancellor’s move was expected to deliver three key benefits:

• reduce the average annual utility bill by around £150;
• help bring inflation closer to target; and
• lower some government borrowing costs linked to inflation.

But less than four weeks after the Bank had suggested inflation was finally heading in the right direction, the conflict involving Iran sent oil markets sharply higher. Brent Crude rose from around $70 a barrel in late February to more than $110 a month later, before settling closer to $100.

The immediate impact was seen in March’s inflation figures, with annual inflation rising from 3.0% to 3.3%. Motor fuel prices climbed sharply, reversing the falls seen earlier in the year and reminding policymakers how vulnerable inflation remains to global shocks.

Now, however, there are signs that at least some pressures on household budgets may be easing.

New figures published this week show UK grocery price inflation slowing to 3.1% in May, down from 3.8% in April. The drop offers a degree of relief to consumers after several years of persistently rising supermarket bills.

Shoppers are also becoming increasingly reliant on promotions to manage costs. More than 30% of grocery sales in May involved some form of special offer or discount — up significantly from the same period last year.

Competition between supermarkets remains intense. Ocado was the fastest-growing grocer, with sales rising by 10.2%, while Lidl increased its market share to a record 8.6%, making it Britain’s fifth-largest supermarket chain.

The Government is also attempting to reduce pressure on food prices by suspending tariffs on some imports. But concerns remain that instability in the Middle East could continue to push up global energy and transport costs, feeding through into food prices later in the year.

There is also a lingering frustration for many households that food prices rarely fall as quickly as they rise. Economists sometimes refer to this as the “rocket and feathers” effect — prices shoot up rapidly like a rocket but drift down slowly like a feather.

That helps explain why, even as inflation begins to moderate, grocery bills remain significantly higher than they were before the pandemic.

So far, there are no forecasts suggesting inflation will return to the double-digit levels seen during 2022 and 2023. But the events of recent months have again underlined a key lesson for policymakers and households alike: inflation has not disappeared, and it cannot be taken for granted.