Inflation: Outlook Uncertain But Likely To Increase Over Coming Months
19 April 2013 in Chamber News
Annual CPI inflation increased by 2.8% in the year to March 2013, unchanged from February 2013
Commenting on the inflation figures for March 2013 published today by the ONS, John Longworth, Director General of the British Chambers of Commerce (BCC), said:
“Although CPI inflation held steady in March at 2.8%, it still remains well above the MPC’s target of 2%. This adds to the squeeze felt by businesses and consumers, which impacts how much they are able to spend and invest. Persistent above target inflation remains a barrier to any sustainable recovery.“Looking forward, there is uncertainty over the outlook for inflation. Although our latest economic survey shows that businesses are less inclined to raise prices over the coming months, expected hikes in food prices and the weakness in sterling may add to the upward pressure on inflation in the near-term."
David Kern, Chief Economist at the BCC, said:
“The inflation figure for March was largely as expected – unchanged from February, but slightly higher than the 2.7% rate seen in January. The immediate outlook for inflation is uncertain, but we expect to see an upward trend in the next few months. In addition to planned food and energy price increases, the main upward risk to UK inflation comes from the marked devaluation of sterling. The fall in the pound has been accelerated by expectations that the MPC will announce further increases in QE – particularly after the arrival of Mark Carney as the next Bank of England Governor in July.
“In our March forecast, we predicted that CPI inflation would average 2.7% in 2013. But if the pound weakens much further, we could see inflation at 3% or slightly higher. While inflation eases the debt burden and a weaker pound may provide some support for exporters, the benefits are likely to be more than offset by the damage caused to domestic demand and through dearer imports. Given this background, we hope that the MPC and the new governor will be cautious before launching further increases to QE.”