The UK may be close to the peak in inflation as the impact of sterling weakness should now start to fade according to Azad Zangana, Schroders’ senior European economist.
The Office for National Statistics has confirmed that the annual rate of consumer price index (CPI) inflation remained at 3% in October, coming in below consensus expectations of 3.1%.
“Cheaper fuel prices helped offset a rise in food prices, helping to keep the headline CPI rate unchanged. Excluding the volatile components, the core inflation rate was unchanged at 2.7%. Meanwhile, annual inflation based on the retail price index (RPI) rose from 3.9% to 4%.”
Impact of sterling weakness is fading
Overall, the latest inflation figures show that the depreciation in sterling is still causing prices to rise faster than in recent years. However, this appears to be close to an end. Data from producers show that both input and output prices peaked months ago, which should mean that we are close to a peak in CPI inflation.
Rising oil prices to squeeze households
With regards to monetary policy, whilst the Bank of England (BoE) is not in a rush to raise interest rates again, the latest inflation figures are helpful for rate setters, especially if inflation now falls back towards the BoE’s 2% target. However, the rise in global oil prices in recent weeks could slow the fall in inflation which we are forecasting, and is likely to squeeze households further, keeping GDP growth subdued.