Inflation to climb above 2% by early 2017 - EY ITEM Club comments

16 August 2016

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  • Inflation nudges up in July…
  • …reflecting higher food and fuel prices
  • Sterling’s drop will contribute to pushing inflation above 2% by early 2017

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“Inflation reached its highest rate for 20 months in July but is still short of the 2% target. We are likely to see inflation continue to rise over the remainder of the year and to climb above 2% by early 2017. However, with core inflationary pressures remaining very muted, in line with the enduring softness of wage growth, we expect inflation to peak at 3%.

“Base effects will become increasingly important as the year progresses, particularly once last winter’s steep fall in petrol prices drops out of the calculation. Sterling’s recent plunge will also gradually start to feed through, with today’s producer prices data suggesting that there is already some evidence that this is beginning to push up manufacturers’ input costs.

“Therefore, while a rise in inflation is likely to bring an end to the recent improvement in household spending power, the drag from rising prices will not be as great as when we last saw the pound dropped sharply in 2008-09.”

ENDS

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