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Inflation drop welcome, but higher fuel costs will frustrate

23 May 2018
cityResponding to latest official inflation figures, showing that inflation fell to 2.4% in April, Tej Parikh, Senior Economist at the Institute of Directors, said:

”The continued drop in inflation is welcome, but underlying price increases in motor fuels are likely to frustrate consumers and businesses over the coming months. 

“With geopolitical tensions pushing up oil prices, higher fuel costs have partly countered the downward effect of weaker currency passing out of the figures, as these costs represent a key outlay for consumers.

“The rise in oil prices comes with unfortunate timing. Buoyed by fast-falling inflation, households were becoming increasingly confident about their finances, while business were recovering from high import prices. But for the summer months at least, we’re likely to see some continued upward pressure on domestic prices and therefore restraint in consumer spending.”

On implications for the Bank of England:

“Although the Bank of England has tended to look past oil price shocks previously, a lot now depends on the economy’s ‘bouncebackability' from a weak start to the year. A rebound in growth this quarter combined with a persistent impact from higher oil prices may just force the MPC’s hand and lead to rate rises at its August meeting.”

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