Inflation to rapidly get back to the 2% target, perhaps as soon as next month - EY ITEM Club comments

17 January 2017

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  • CPI inflation reaches 1.6% in December…
  • …a 29-month high
  • Inflation likely to rise to 3% by the second half of this year

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

“CPI inflation accelerated in December reaching the highest rate since July 2014. It looks likely that inflation will rapidly get back to the 2% target, perhaps as soon as next month. Beyond that, we still appear to be headed for CPI inflation of close to 3% towards the end of 2017.

“December’s pickup was mostly due to powerful base effects related not just to last winter’s drop in petrol prices, but also to the falls in food prices in late-2015 and early-2016, which are now dropping out of the inflation calculation. However, there is also some evidence that core pressures have started to intensify.

“The producer prices data, also released today, reported intensified inflationary pressures in the supply chain, with both input costs and output prices rising at their fastest rates since early-2012. With these supply chain pressures and the more direct impacts of a weaker pound likely to steadily feed through to consumers this year, household spending power will increasingly come under pressure.”