There are worries they will linger for a lot longer. However ultimately we still don’t know if rising prices will become the new ‘new normal’ or if they’re just a temporary result of us emerging from a pandemic and a year of lockdowns and restrictions. Like porridge without enough milk, it’s sticking around for a lot longer than was previously thought, but is expected to ease off as pandemic supply chain issues finally lift. That is because central bank policymakers still believe inflation is transitory. While there is still dissent around the table, and there is a chance this slightly lower reading may hold off members of the Monetary Policy Committee from voting for a rate rise in November, the financial markets have largely priced a rate rise in by the end of 2021, followed by further rises next year.Ī certain amount of nervousness ripples through the financial markets at the very thought of a rate hike, given that investors have become somewhat used to this era of ultra-low rates, so this edge downwards in CPI in September may provide some short term relief.īut even if the Bank of England does raise the base rate by a few notches in the months to come, it isn’t forecast that it will go much beyond 1% next year. If gas prices continue to spike and power rationing is introduced by energy intensive industries, economic growth could be knocked back into a downturn. Avoiding the bad dream of stagflation will still be the priority, rather than the lofty aims of a goldilocks economic utopia. Too much inflation in the mix risks the economy getting too hot, leading prices to spiral upwards. If rates are pushed up rapidly, there’s a risk it gets too cold, freezing off economic growth. A 2% inflation target is considered just right, as long as the economy also keeps growing.īut the recovery is already judged to be cooling rapidly due to supply chain issues, labour shortages and energy price surges. With prices staying stubbornly high and another surge expected, a gentle rise in interest rates before the end of the year still looks likely if there is any chance of keeping a Goldilocks economy within reach. It is forecast to reach 4%, double the Bank of England’s target by the end of the year, and potentially 5% by next April. ‘’The latest CPI reading has come in a touch lower than August at 3.1%, after the artificial blip from last year’s Eat Our to Help Out scheme dropped out of the figures Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown Inflation lower than expected but goldilocks economy goal still elusive and stagflation fears persist Inflation lower than expected but goldilocks economy goal still elusive Streeter
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