Inflation expected to drop following high
ECONOMIC experts are predicting that the headline rate of inflation will fall next year despite it hitting a three-year high of 5.2%.
The annual rate of CPI inflation rose from 4.5% in August with the Office for National Statistics pointing to increases in gas and electricity charges, and pressures from air transport and communcation services for the rise.
The main downward pressure to the change in CPI inflation between August and September came from clothing.
The RPI rate of inflation, which includes mortgage costs, rose from 5.2% in August to 5.6%. It is the highest RPI annual inflation rate for more than 20 years.
Coverage of the inflation figures is brought to TheBusinessDesk.com’s readers in association with stockbrokers Redmayne-Bentley.
David Scott of Redmayne-Bentley, said: “The rise in CPI Inflation to 5.2%, due to increased energy costs, was well flagged and matched the 5.2% recorded in September 2008, just after oil rocketed to $147 a barrel.
“With the rise in the RPI measure to 5.6% this takes the annual rate of this measure to its highest since June 1991. Today’s figures will also prove expensive for the Government, putting already stretched public finances under increased pressure, as the September CPI reading is used to calculate next April’s rise in the basic state pension and other state benefits.
“At risk of losing credibility as an inflationary fighting central bank the MPC are firmly of the view that inflation will probably peak this month before falling sharply next year, possibly falling back to around target of 2%. This view is generally accepted by independent forecasts.”
Ian McCafferty, CBI chief economic adviser, said: “The sharp rise in consumer price inflation to above 5% was to be expected given rising utility bills. This will put household budgets under further pressure.
“We hope that this high rate of inflation will be short-lived. We expect inflation to ease back significantly through 2012 as the upward pressure exerted by this year’s VAT rise and commodity price increases fades away.”
Graeme Leach, chief economist at the Institute of Directors, said: “The first response to the latest inflation figures is ‘ouch’. The second response is more considered.
“The MPC always knew that inflation would head north of 5%, but their main concern was the inflation outlook over the next two years. Hard though it is for many to believe, without QE2 the UK was facing deflation by 2013 because of the weakness of the money supply.
“Today’s figures in no way undermine the MPC’s decision to launch QE2. Don’t forget that in 2008/9, inflation fell from 5% to 1% in just 12 months.”
