Analysis: some good news but work to do
Inflation has come down which is a good thing, and most importantly, it’s coming down faster than we thought it might.
The inflation figure came in at 7.9%, that was better than expected. We thought it might come in at 8.2%, down from 8.7% the previous month but still almost four times more than the Bank of England’s 2% target.
So, we’ve got some work to do.
The slowdown was driven by a slowdown in food prices, which we know have been rising at a staggering pace.
They rose by 18.3% the previous month.
Those big price increases are still rising, as I said at the fastest pace in decades, but they’re coming down as are motor fuel prices.
Most importantly, something policymakers are looking at is core inflation, stripping away food, stripping away energy because they can be quite volatile, looking at underlying price pressures in the economy, something known as core inflation.
That came down from 7.1% to 6.9%.
Now all of this is good news because it takes pressure off the Bank of England to raise interest rates again next month.
We think it’s going to have to raise rates because wage pressures are so robust in the economy.
And that’s something that policymakers fear could spur inflation; they’re going to want to nip that in the bud.
But financial markets have been pricing in a half percentage point increase to 5.5%.
This inflation data may take some of the pressure off and mean that policymakers only have to raise rates by a quarter of a percentage point.
Now, there’s good news but it might not provide that much relief to anyone who’s re-mortgaging in the next couple of months.
