Inflation could hit 6 per cent on fuel bill price hike
Inflation could reach 6 per cent by the end of the year if an anticipated 30 per cent hike in energy bills hits consumers later this year, according to BNP Paribas economist Alan Clarke.
His prediction comes after the official consumer price index inflation rate jumped to a record 3.8 per cent in the year to June. It is the highest rate for 16 years and almost double the 2 per cent target.
Rising meat, fruit and cereal costs pushed food inflation to 9.5 per cent from May’s annual rate of 7.8 per cent. The retail price index measure of inflation hit 4.6 per cent, up from 4.3 per cent in May.
“We now think CPI will hit 5.5 per cent in September and could reach 6 per cent by Christmas on the back of yet to be announced utility bills increases of 30 per cent in September-October,” Clarke told CityA.M.
Most economists are predicting inflation will peak at between 4 and 5 per cent in the second half. Jonathan Loynes of Capital Economics said that’s based on the assumption that gas and electricity bills rise by 20 per cent in October and that oil prices hold steady. “But there’s been talk of gas and electricity bills rising by up to 40 per cent which could push inflation over 5 per cent.”
Analyst Views: How high will inflation reach at its peak?
Howard Archer (Global Insight): Inflation will peak at 4.8 per cent in November, but the economy will weaken considerably over the coming months and companies just won’t be able to make price increases stick as consumer spending power is hit.
George Buckley (Deutche Bank): We had expected a peak of 4.3 per cent in Q4, but depending on how much utility bills rise, it could be more. Talk of inflation heading to 5 per cent may not be misplaced.
Hetal Mehta (Ernst & Young Item Club): We forecast inflation to peak in October at between 4.5 to 4.6 per cent and we think it will stay above 4 per cent until at least January or February and not drop down until the middle of the year.