CPI Inflation Forecast to Rise

Despite, concerns over a global slowdown the UK can expect to see a rise in the rate of inflation this February. The main cause will be unexpectedly large rises in the price of food, particularly wheat and dairy products.

The Office for National Statistics said factory gate inflation rose at its fastest annual pace in more than 16 years, after the annual rate shot up to 5.7% last month from 5% in December.

The rise was driven by an all-time high annual inflation rate in ingredients for home-produced food of 36%. Bread prices rose by 7.5% last year, while milk, cheese and eggs surged by 15%.

With oil prices reaching $100, the cost of raw materials rose by 18.9% from a year ago. This increases the likelyhood that rates will not fall for several months. The MPC admit there could be an inflationary spike which could cause inflation to rise to 3% by the end of 2008. This would be at the upper range of the Government’s inflation target.
These inflationary figures are bad news for homeowners and business who are hoping that the MPC will be able to cut interest rates, like the Fed in the US.
Underlying core inflation often predicts future CPI and RPI inflation; it will certainly be a factor in determining the MPC’s inflationary prediction on Wednesday