Inflation is expected to rise again
OFFICIAL figures out tomorrow will show whether inflation sprang forward in April, with the Bank of England fearing it could hit five per cent this year.
The Bank said last week consumer price inflation could remain above its two per cent target until 2013.
In March, inflation surprisingly eased to four per cent annualised – from 4.3 per cent in February – despite a 0.3 per cent monthly rise in prices. Resurgent food prices could see the consumer price index edge back above four per cent for last month.
“Governor Mervyn King seems reluctant to hike rates in response to these inflation overshoots lest this cause sterling to surge or in some other way upset the rebalancing,” said Citigroup’s Michael Saunders.
“King’s emphasis on the need to rebalance the economy – away from public spending and consumer spending in favour of exports and investment – seems to imply that he puts a lower priority on actually hitting the inflation target,” Saunders added.
Rising prices and weak growth continue to cause headaches for the Bank, with last week’s inflation report again lowering the outlook for the economy and raising the forecast for inflation.
“This was the eighth consecutive inflation report in which the Bank has lifted their forecast for the following four quarters, with the inflation forecast rising by an average of 0.6 to 0.7 per cent in each,” Saunders said.