Tricky teens: inflation set to soar beyond 13%
The Bank of England has said that inflation could reach over 13% before the end of the year. But that’s the lower end of the speculation.
The inflation figure in July 2022 reached an eye-watering 10.1%, as measured on the consumer prices index (CPI) yardstick. That was the highest level in 40 years, a reminder that much of the current population has never experienced such a rapid rise in prices. However, 10.1% is not the end of the story.
In early August, the Bank of England said that it expected inflation to be “just over 13%” in the final quarter of the year. Alas, even that figure may now be an underestimate of the peak as it was produced before new – and still higher – projections for the utility price cap in October and January emerged. For example, Citi, the US investment bank, thinks the new year utility increase could mean inflation reaching 18.6% in the first month of 2023.
If there is any comfort to be found in the inflation forecasts, it is that the Bank of England believes that after a tough 2023, inflation should move back down to the official target figure of 2% in the following year. The mathematics of inflation suggest the Bank of England could be correct, even if its forecasting record has been poor of late. For inflation to remain at elevated levels requires prices to rise at the same pace as over the last twelve months, a period marked by post-Covid-19 supply chain problems and the economic fallout from the war in Ukraine.
Whether or not the Bank of England is right this time, in the near term the inflationary pressure on incomes will remain. Research is already showing that people are considering a variety of ways to help make ends meet. Examples include drawing on savings and investments, stopping or reducing pension contributions or accessing retirement benefits earlier than previously planned.
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