Higher inflation on way, warns economist

Inflation will soon be rising again and the Consumer Prices Index (CPI) rate could top five per cent this year, it has been claimed.

In an interview with Bloomberg, Bank of England’s Monetary Policy Committee Andrew Sentance said the recent drop in the rate from 4.4 per cent to four per cent is just temporary, noting there are many inflationary factors at work.

He cited one of these as the weakness of the pound – something that could mean more expensive imported goods, not least as the value of the euro may rise as the European Central Bank raises its rates.

“There’s still quite a bit of evidence that there’s some further upward pressure on inflation to come,” he remarked.

If Mr Sentance is correct, this could mean increased pressure on households budgets and a greater need for some to consider a debt management plan.

The economist has been the foremost MPC advocate of higher interest rates to curb inflation since last summer, being the only member to call for a rise until February this year.

Martin Weale and Spencer Dale also voted for a rise in that month and March, with the possibility a fourth member could have joined them this month – something next week will reveal when the minutes of the latest monthly meeting are published.

However, while Mr Sentance and his fellow rate-raisers have been outvoted on the MPC, his view that inflation will rise again partially concurs with that of senior economic advisor to the Ernst & Young ITEM Club Andrew Goodwin.

However, while Mr Goodwin also said the recent CPI fall will be reversed – saying oil prices will push up inflation – he said it is unlikely to get as high as five per cent.

Posted by Paul Thacker