UK edges closer to a 4% inflation rate experts warn

10th September 2010

UPDATE: The Food and Agriculture Organisation food commodities price index – covering meat, dairy products, cereals, oils and fats, and sugar – rose by a further 7% in sterling terms in September, pushing annual growth up to 29% from 23% in August.

This suggests we are heading closer to the forecast by economists at Henderson Global Investors that we will see Consumer Price Index food inflation hit 7% by the end of the year.

CPI food inflation rose from 3.0% in July to 3.9% in August. A further increase to 7% would add 0.3 percentage points to headline CPI inflation, given food's 9.6% weight in the basket. The headline rate was 3.1% in August.  

As Henderson's chief economist Simon Ward says: "These developments suggest significant upside risk to the Bank's forecast that inflation will stabilise at about 3% before starting to fall next spring.

"A rise to 4% is possible if the various adverse effects coincide. A renewed inflation increase would make it difficult for the MPC to embark on "QE2" asset purchases; doves may wish to press their case at next week's meeting before the window for action closes."


Is 4% inflation on the cards?

10 September 2010

Experts say 4% inflation is possible by the end of the year if food commodity prices continue to rise. We look at the implications

If food costs continue to spike, Consumer Price Index (CPI) inflation could reach 4%, according to the experts.

Ecomomists at Henderson Global Investors suggest that recent rises in global food commodity prices could lift annual CPI food inflation to about 7% by the end of the year; hitting consumer spending and seriously hampering economic recovery in the UK.

The Food and Agriculture Organisation (FAO) food index – a monthly measure covering meat, dairy products, cereals, oils and fats, and sugar – rose by an annual 22% in sterling terms in August, its fastest rise since September 2008.

And the trend has continued, with food prices increasing further this month. The Commodity Research Bureau daily spot food index is currently 7% above its August average.  

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