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ITEM Club: persistently high inflation is back

Posted at May 20, 2013 | Categories : News

Persistently high inflation is back, according to Ernst & Young’s ITEM Club, driven by a combination of global and domestic factors such as higher food prices and higher administered and regulated prices.

The leading economic forecaster expects the headline Consumer Price Index (CPI) rate of inflation to move above 3% this summer – albeit briefly – and then to remain above the Chancellor’s 2% target for the foreseeable future.

While inflationary pressures should cool in the Autumn, as domestic energy and food prices rise by less than they did a year earlier, it’s unlikely that CPI inflation will dip below 2.5% before 2016.

Also, ITEM Club predicts that inflation as measured by the Retail Price Index (RPI) will remain above the CPI throughout the period, and start to accelerate away from CPI in 2015 and 2016 as housing costs increase.

Adding to the mix, the Club’s senior economic adviser, Peter Spencer, comments: “By the time the effect of rising university tuition fees drops out of the inflation calculation in late 2015, underlying inflationary pressures will be building again, as a stronger economy improves workers’ wage bargaining powers and firms’ ability to raise prices.”