Inflation should still fall back to target through 2013 - ITEM Club

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s CPI inflation figures:

  • Lower fuel prices are offsetting higher energy and food costs
  • More than half of the energy price rises are still to hit the inflation figures
  • But inflation should still fall back towards target through 2013

“This was in line with what we had expected, with lower petrol prices offsetting the impact of higher domestic energy and food bills.
 
“We’ve still seen less than half of the impact of higher domestic energy bills, with the rest likely to come through into the inflation figures over the next two to three months. With food prices also continuing to rise strongly, this is likely to be sufficient to keep inflation at – or maybe even slightly above – current rates until the early part of next year.
 
“However, there was little to alarm in today’s producer prices figures and, with commodity prices having stabilised in recent weeks, we remain optimistic that inflation will come back to heel with the CPI measure dropping back to the 2% target by the end of next year. Consumers have already felt the benefit of the significant drop in inflation rates over the past twelve months and, with employment also continuing to increase, a further moderation should ensure that a gradual consumer recovery develops.
 
“Today’s inflation figures are unlikely to have any implications for monetary policy. The MPC is still able tell a compelling story of temporary factors keeping inflation high and should be able to find room to provide further stimulus if there are signs that demand is faltering.”