Press release

15 Dec 2021 London, GB

Inflation surprises on the upside again – EY ITEM Club comments

Rising petrol prices and a higher-than-expected core reading drove CPI inflation to a 10-year high in November.

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Nick Cosgrove

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  • Rising petrol prices and a higher-than-expected core reading drove CPI inflation to a 10-year high in November. The EY ITEM Club expects inflation to rise further next April, when the energy price cap is due to increase again.
  • But the EY ITEM Club still expects inflation to slow in H2 2022 and into 2023. The upward pressures from global goods and commodity prices should fade, while there remains little evidence of an escalation in underlying domestic pressures.

Martin Beck, chief economic advisor to the EY ITEM Club, says: 

“CPI inflation accelerated from 4.2% in October to 5.1% in November, its highest rate since September 2011. November’s pickup was largely down to two factors. First, at 4.0%, core inflation was much higher-than-expected. Though there were powerful base effects, following a soft reading last November when the economy returned to lockdown, the pass through of rising global goods prices appears to have been a key influence. Second, petrol prices rose by 5.1% month-on-month after a rise in the oil price, which contributed around 0.2 percentage points to the pickup in inflation between October and November.

“The EY ITEM Club expects inflation to remain at, or slightly above, current rates for the next few months. The CPI measure is then likely to briefly move higher next April, when the next rise in the energy price cap and the restoration of the VAT rate to 20% for the hospitality sector affect the index.

“But the EY ITEM Club then expects inflation to slow significantly as we move through the second half of 2022 and into 2023. Strong base effects, caused by this year’s acceleration, will come into play, while oil and natural gas prices should fall back. Furthermore, provided that the Omicron variant doesn’t materially alter the outlook, the rotation of consumer spending back towards services and away from goods should help to calm the pressures on global goods prices. Given there is still little evidence of any escalation in domestic underlying inflationary pressures, the EY ITEM Club thinks inflation could fall well below the 2% target during 2023.”