18 Jun Inflation News Yes…No…It’s Good…It’s Terrible
This leap from the previous month’s 1.8% is the highest level seen since September 2013 and pushes the rate above the Bank of England’s (BoE) target rate of 2%.
The BoE has said that it expects the CPI rate to rise to 2.8% by 2018, although many independent analysts believe that even this figure could be exceeded.
The wider CPIH rate (CPI plus housing – not currently classified as a ‘National Statistic’), which includes owner occupiers’ housing costs, was also recorded at 2.3%.
There were multiple factors for the CPI rise, but food prices were highlighted as they recorded their first annual increase (0.3%) for more than 30 months.
Transport costs and fuel also contributed to the rise, mainly as a result of the devaluation of Sterling following the Brexit vote and the fact that oil is priced globally in US Dollars.
Meanwhile, the wider Retail Prices Index (RPI) rose to 3.2% from January’s figure of 2.6%.
Given that the CPI figure is crucial to the BoE’s calculations relating to interest rates all eyes are on them to see which way interest rates will go moving forward. At the most recent Monetary Policy Committee (MPC) meeting (16 March), one member voted for a rate rise.
The Chief business economist at IHS Markit, a source of influential data, Chris Williamson, commented that: “It remains likely that policymakers will adopt an increasingly dovish tone in the coming months, despite the rise in inflation, as the economy slows due to consumers being squeezed by low pay and rising prices.”