Inflation is set to reach a two-year high of 1.2 per cent this week, as consumers feel the effect of rising food costs and the weaker pound.
Economists have predicted that inflation will continue to trend up over the next year, above the two per cent target set by the Bank of England. In fact, Threadneedle Street’s economists have predicted that UK inflation will rise as high as 2.8 per cent in 2017 and 2.7 per cent in 2018, the sharpest sustained increase since 1997.
Investec economist Chris Hare pointed to the depreciation of sterling as a “considerable” factor in the rising cost of living. “In trade-weighted terms, the pound declined by 5.1 per cent, not quite matching July’s 6.5 per cent fall, but considerable none the less,” he said.
Uncertainty over the terms of the Brexit has driven down the value of sterling while at the same time consumer firms have been raising food prices, putting extra pressure on the average wallet.
Last month, Unilever hit the headlines when it tried to impose a ‘Brexit tax’ of ten per cent on bestselling products such as Marmite, and since then Walkers and Bird’s Eye have also threatened price hikes. Alan Clarke, an economist at Scotiabank, said that consumers can expect to see ongoing food price rises, saying: “Given the fall in the pound and the increase in upstream food commodity prices, we are increasingly confident that the period of food price cuts is coming to an end.”
The CPI is announced every month by the Office of National Statistics, and uses consumer trends to work out how the average shopping basket will be affected by a variety of economic factors. October’s increase should is likely to reflect last month’s “flash crash” in the pound, increasing food prices, and the rising cost of petrol. According to Scotiabank’s Clark, petrol prices alone are believed to have contributed 0.1 per cent to October’s inflation figure, while food prices are responsible for 0.05 per cent.
Inflation was one per cent in September.