Warwick economist Dr Mike McMahon welcomes the latest figures from the Consumer Prices Index, but warns the path ahead remains bumpy as household budgets continue to feel the squeeze from rising food and energy costs.
Dr McMahon, from the Department of Economics at the University of Warwick said:
“This September 2012 CPI release should be welcomed as it continues the slowing rate of price increases since CPI inflation peaked at 5.2% in September 2011. Prices have risen 2.2% in the 12 months since then; the lack of increase in household services prices, especially compared to the large increases in 2011, is the largest contributor to the decline.
"However, the rate of price increase is likely to continue to outpace the increase in wages, albeit at a slower rate. The most recent data from the Average Weekly Earnings Index suggests that total pay, which is regular pay and bonuses, rose 1.5% in July 2012 compared with July 2011. In July 2012, CPI inflation was 2.6%.
"While the current rate of inflation is now very close to the Bank of England’s inflation target of 2%, the Bank will continue to try to stimulate both growth and inflation through the use of QE; the current weakness in the economy suggests that domestically-determined prices will continue to fall in the coming months and years without further action. Of course, oil prices have picked up since June 2012, rising almost 17% in 3 months (using a simple average of three spot prices; Dated Brent, West Texas Intermediate, and the Dubai Fateh). Over the same period food commodity prices have risen 8% (according to the FAO food price index). If continued, both of these upward trends, which are outside the control of the Bank of England, suggest that the path for prices over the coming months is likely to remain a bumpy one, and households budgets may be further squeezed by rising costs of food and energy.”
Dr McMahon can be contacted on 02476 523056, firstname.lastname@example.org
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