Inflation going nowhere at 2.8%

Inflation stayed stubbornly high at 2.8% in March, and could soon balloon to 3% according to the Bank of England.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Consumer price inflation has remained at a high of 2.8%, its highest rate since May last year. The inflationary drivers were the rising cost of books, gadgets (like digital cameras) and car insurance, says the Office for National Statistics, although these price hikes were offset by lower inflation for petrol and diesel.

The figures have forced the Bank of England to change its tune on targets. Last year, the Bank said that inflation would reach a low of 2% in 2013. That’s now been scrapped. The word from the BoE pointy heads is that inflation will instead rise to hit 3% and stay above the 2% target until 2016.

But don’t start panic buying just yet.

A glimmer of inflationary hope lies in the falling commodity prices, notably oil, which could take some of the heat out of inflation in coming months. Just today, Sainbury's, Morrisons and Asda cut the price of petrol at their pumps. That said, it’ll have to be one hell of a price decrease if fuel is to offset the depreciation of sterling, which is driving import costs up and up, as well as sky-high food prices, rising tuition fees and ever-more-expensive utility bills.

The problem with the ongoing high inflation is that it limits the Monetary Policy Committee’s options when it comes to stimulating the economy. Quantitative easing is a driver of inflation. This means that economic growth in the coming quarter will probably have to be organic, that is to say pretty lacklustre.

Doubtless, new Bank of England governor Mark Carney was hoping for a slightly better start to his reign...
 
On the bright side, at least inflation didn’t actually increase in March. And there’s been some relief on the producer prices front: factory gate inflation rose by an annualised 2%, the smallest increase since July.

But that’s not to say that consumers aren’t more out of pocket. Pay growth has now fallen to an annual rate of just 1.2% - close to the record low of 1.1%, according to the ONS data.

So when we said, ‘Don’t panic buy’, we were being somewhat facetious. You can’t afford to panic buy…


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