CPI inflation figures are ‘very nasty surprise’ says ITEM Club - rising energy prices will keep inflation in 2.5-3% range for rest of year
Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s CPI inflation figures:
- A nasty surprise – the pickup in inflation was much larger than expected
- Rising energy prices will keep inflation in the 2.5-3% range for the rest of the year
- Higher inflation adds another reason to be concerned about Q4 growth
“This is a very nasty surprise. We had expected inflation to pick up in October because of the rise in tuition fees and food prices, but the scale of the increase was surprisingly large.
“Unfortunately we cannot write this off as a one-off as the tuition fees effect will now be in the index until next year. And with the impact of the recent increases in domestic energy bills set to hit the index next month, it looks as if inflation is going to remain in the 2.5-3% range for the remainder of the year.
“But further out we are still confident that inflation will slow back towards the target. And because of the causes of the October increase, it could be argued that these figures aren’t quite as bad for household finances as they may first appear. They represent a significant squeeze for those affected directly by the tuition fee increase, however the vast majority of people will not have been impacted.
"However, even allowing for this, it is clear that the influence of higher food and energy prices will be felt by consumers. The easing of inflationary pressures throughout the summer had translated into a stronger consumer performance, but there is a danger that this will stutter as we move into winter, adding another reason to be concerned about the Q4 growth figures.”