- CPI inflation edged up further in January, and this is likely to be the prelude to a much faster acceleration over the next few months. The significant rise in the energy price cap should push the CPI rate to over 7% in April.
- The risk of a slow retreat in oil and gas prices means CPI inflation is likely to remain well above the 2% target throughout 2022. But the EY ITEM Club still expects inflation to fall significantly in 2023, as commodity and goods prices fall back and some large base effects come into play.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“CPI inflation edged up to 5.5% in January from 5.4% in December. The clothing and footwear and furniture and household goods were the main sources of upward pressure, with traditional January discounts being smaller than normal. But January’s pickup in inflation was dampened by strong base effects, particularly in the food and petrol sectors, following large month-on-month price rises last year.
“The EY ITEM Club expects inflation to accelerate significantly over the next few months. Following Ofgem’s announcement that the energy price cap will rise by 54% on April 1, and the news that the Government’s policy response will not mitigate the impact on inflation until later this year, the EY ITEM Club thinks inflation will rise to over 7% in April. Furthermore, the risk of a relatively slow retreat in oil and gas prices means that CPI inflation could remain above 5% until late summer.
“But the EY ITEM Club still expects inflation to fall significantly during 2023. Large base effects will come into play, the upward pressure on global goods prices should fade as consumer demand shifts to services and supply bottlenecks are resolved, and commodity prices should fall back. So the odds of a scenario where the UK shifts to a regime of persistently high inflation regime are low.”