Inflation levels for August rocket
September 18, 2008
According to recent reports inflation levels for July rocketed for 4.4%, having already hit a high of 3.8% the previous month. The increase in the level of inflation means that inflation is now at its highest since records began in 1997. This will put further pressure on the Bank of England and the Monetary Policy Committee when it comes to the next rate setting meeting in September, with increased pressure to try and bring inflation levels back under control.
With inflation now at 4.4% it is well over double the target of 2% set by the government. It is also higher than many industry officials had predicted, with many thinking that it was going to come in at 4.2%. There are now fears that inflation levels could rise above 5% before the end of the year, with high food and oil prices having resulted in a surge in the level of inflation for July.
One economist said that it is not only food and oil that is to blame for the rise in inflation levels. He said: ‘Worryingly, core inflation spiked up to 1.9% in July from 1.6% in June, which raises concern that higher energy and food prices are increasingly having second-round inflationary effects. Inflation is set to go significantly higher still over the coming months, despite the recent retreat in oil prices. Indeed, it could well reach 5.0% in October. The spike increases the risk that the Bank of England will raise interest rates.’
He added: ‘Nevertheless, it now seems very unlikely that the Bank of England will be prepared to cut interest rates until 2009. We still expect interest rates to come down markedly in 2009 to 4.25% by mid-2009 and to 3.75% by the fourth quarter of next year.’
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