Officials expect inflation levels to soar past 4% by end of the year
August 25, 2008
Many industry officials and consumers have said that they now expect inflation levels to burst through the 4% barrier within the next twelve month period, having seen inflation levels already spiral to 3.8%, which is way above the government’s target of 2%. According to the results of a recent survey in May many predicted that inflation levels would rise to around 4.1% over the next twelve months. However, this prediction has now changed to around 4.6%.
The index has hit a record high for four consecutive months and reports state that the Bank of England is monitoring price expectations carefully amidst fears over the public perception of inflation levels. Over recent months the base rate has been kept on hold by the central banks as a result of soaring inflation levels, and whilst the base rate did drop three times between December 2007 and April of this year, it has remained on hold at 5% since then.
One industry official stated: “The further rise in inflation expectations for the year ahead is bound to alarm the Monetary Policy Committee. Some may argue that the erosion of the credibility of the inflation target does not matter as long as pay growth does not pick up. In our view that is too complacent.”
Inflation levels have now soared to the highest level since records began in 1997, which is when the Labour government came back into power.
In the meantime expectations over interest rates have changed dramatically. Just a few months ago many industry officials were expecting interest rates to fall below the 4% mark by the end of the year. However, with inflation having spiralled out of control to this extent many now feel that rates will either remain on hold or could even rise.
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