Recent good news on inflation is likely to change once the effects of the Iran war take hold.

“I know the cost of living is still a number one concern for households.”

The Chancellor expressed her concern for working families the day after the Office for National Statistics (ONS) published April’s inflation data showing the yearly rate, as measured by Consumer Prices Index (CPI), had fallen by 0.5% to 2.8%.

However, Rachel Reeves was not wrong to talk about the impact of the cost of living:

• April’s drop in the CPI was largely due to a statistical quirk. Each April, water and sewerage bills have their yearly price increase and the quarterly Ofgem price cap for gas and electricity changes. Both revisions were much less significant in 2026 than 2025, together accounting for nearly all that 0.5% fall in yearly inflation.
• Economists at the Treasury, Bank of England and elsewhere expect inflation to rise because of the Iran war. Higher fuel costs are expected to work their way through the economy. A good example is that Ofgem price cap, which will jump by 13% on 1 July.

Even if your earnings keep pace with inflation, then the static personal allowance and tax thresholds, frozen by the Chancellor until at least 2031, mean your after-tax income will not – unless you’re a non-taxpayer.

On a longer-term perspective, inflation that runs consistently above 2% can undermine your financial planning unless you take action to adjust for it. For example, if inflation had been 2% a year between January 2020 and April 2026, prices would have risen by 13.2%. In fact the CPI increased by 31.3%.

That pace of increase over little more than six years could mean that the level of your family’s life cover or your retirement savings target needs to be reviewed now…before the next round of inflation bites.