Experts say inflation has probably peaked and price rises should slow during the rest of the year… but fall will be ‘bumpy’
Inflation has probably peaked and price rises should slow during the rest of the year, experts say.
Falling petrol costs are expected to be the main driver behind a forecast slide in the Consumer Price Index (CPI) when December’s figures are released this week.
Headline CPI, which peaked at 11.1 per cent in October, may have eased to just over 10 per cent. That’s still close to a four-decade high but at least heading in the right direction, economists say.
Balancing act: Economists warn it will take time before inflation is tamed and the Bank’s 2 per cent goal is met
This should encourage the Bank of England’s Monetary Policy Committee to temper further rises in its base rate, currently 3.5 per cent.
‘A continued falling trend should help to convince the MPC that it can begin to move the Bank rate up in smaller increments than December’s half-percentage point,’ said Philip Shaw of the Investec group.
But economists warn it will take time before inflation is tamed and the Bank’s 2 per cent goal is met.
‘We should now be on a gradual but bumpy trajectory down to target, which we think will take at least 18 months,’ said Deutsche Bank’s Sanjay Raja. ‘The recent fall in gas prices should help get us there a little quicker if market pricing is sustained, or falls further, over the coming quarters.’
Deutsche Bank believes the recent fall in wholesale gas prices to levels last seen before Russia’s invasion of Ukraine will drive down inflation by a further three percentage points.
That would see household bills in June falling below the Government’s £3,000 energy price guarantee, and saving the Treasury at least £10billion in support payments.