Inflation hit a 16-year high of 5.2% in September, as energy providers and other companies passed on higher costs to consumers. Still, inflation, as Matthew Sharrat of Bank of America noted, is “very much yesterday’s news”. Price rises are close to peaking as oil prices have slumped by $50 a barrel over the past three months; food prices have eased, with milk and fruit prices falling as fuel and fertiliser costs decline; while the slumping economy is easing demand.
“It looks to be downhill from here for both inflation and interest rates,” said Nils Pratley in The Guardian. Commodities look unlikely to rebound significantly anytime soon. “With the likelihood of global recession rising”, industrial metals will fall further, said a report by Francisco Blanch at Merrill Lynch, while oil could fall as far as $50 a barrel in the coming year, according to Capital Economics. It reckons inflation will be around 1% by this time next year, when everyone could well be worrying about deflation.
But the inflation figures aren’t all cheer. Pensions and benefits are based on a figure related to the September retail price index, which means “the Government may find itself spending around £3bn more next year on benefits than it thought at the time of the budget”, said Gemma Tetlow, an economist at the Institute of Fiscal Studies, in The Times. Yet another reason, then, to worry about taxes going up further.