Fuel leads drop in prices, says ALEX BRUMMER

Here is a first. A letter arrives from my fuel supplier British Gas to let me know that my monthly direct debit is to be cut from £366.74 a month to £172.49.

I am not naïve enough to think the message is down to the kindness of British Gas owner Centrica and recognise our household may have been overpaying and a tariff adjustment was needed.

Nevertheless, it does represent a big change in direction after the gas price spiral of 2022 following Russia’s war on Ukraine. Ever since then, the Government, the Bank of England and anyone else one cares to ask has been only too glad to blame energy for the UK’s exceptionalism on inflation.

Britain imports some 50 per cent of its gas and we are at the end of a long supply chain. As a consequence, high energy prices penetrated the very sinews of the economy.

Headline consumer price inflation, running at 8.7 per cent in May, was bad enough. But core inflation, which excludes energy and food, has also proved stubborn because so many of the goods and services we use have embedded energy costs.

Life’s a gas: Wage growth is displacing energy as the top inflation scapegoat

The reality is gas prices have been coming down with a jolt for some time, with the Office for National Statistics reporting a 3 per cent fall of the systems average price (SAP) in the last week. Electricity prices are 58 per cent lower than at the same time last year and gas is 64 per cent down.

Tumbling fuel costs, as the world adapted to the closure of Russian pipelines to Western Europe, have been the main cause of optimism among officials that inflation would fall rapidly in the spring.

At the time of the March Budget, senior Treasury sources were forecasting a 5 percentage point reduction by summer. The Bank said it was an arithmetical certainty. On Wednesday, when June consumer prices are unveiled, progress should be seen.

But no one should kid themselves that the Bank’s run of 13 consecutive rate rises will have done the trick and the UK, in line with the US, will see a dramatic fall in annual consumer prices to 3 per cent any time soon.

Britain is not self-sufficient in energy like our American friends. Indeed, by raising North Sea oil taxes to 75 per cent (opposition parties want to go further) and regarding new exploration and production in coastal waters as a threat to a carbon-free future, this country has been engaged in an act of self-harm.

The UK’s energy insouciance created space for rocketing prices to be embedded. The Competition and Markets Authority report on petrol and diesel on grocery forecourts found prices were held at abnormal levels to support profits.

Sustained profit margins in the supply chain for goods and in the service sector point to sellers’ inflation.

You don’t have to believe me on this – both the International Monetary Fund and the European Central Bank’s Christine Lagarde say much the same. The UK’s twist on this is the 1970s concept of a wage price spiral exaggerated by skilled labour shortages.

Latest data shows average regular pay in the private sector in the three months to May climbing by 7.6 per cent. In the public sector the Government has adopted a 5 per cent to 7 per cent recommendation from pay review bodies amid disruptive trades union action.

Wage growth is displacing energy as the top inflation scapegoat. The distorting effects of monetary policy by holding interest rates at 0.1 per cent and £895billion of money printing for so long was a foolish error.

Forecasts of a decent fall in the headline cost of living made recently have proved wrong. If my household energy bills are any guide, the only way down is with a bump.

This post first appeared on Dailymail.co.uk