According to the Office for National Statistics (ONS), inflation rose sharply to 1% in September, up from 0.6% in August. It’s the biggest month-on-month increase since June 2014, while November that year was the last time inflation reached this high.
Cast your mind back two years, and investors were more absorbed with the fallout from Scotland’s decision to remain part of the UK, than worrying too much about rising prices.
One more referendum along the road, and it’s no great surprise that the release of any new data on the state of the domestic economy gets everyone into a bit of a panic.
Despite the ONS’s assertion that there was “no explicit evidence” that a Brexit-related drop in the pound has had an impact, it’s fair to assume that it would be a contributing factor somewhere down the line.
"Tesco and Unilever’s well-publicised spat suggests food and household goods prices could also be set to creep upwards"
This is particularly true in terms of import prices for clothing and footwear manufacturers, with the prices of these goods having shot up significantly.
As we have seen from Tesco and Unilever’s well-publicised spat, food and household goods prices could also be set to creep upwards, suggesting inflation is unlikely to come down again anytime soon.
Still, it wasn’t that long ago when Mervyn King was writing his letters to the chancellor outlining why the Bank of England couldn’t keep to its 2% inflation target.
The days of inflation hitting the 5% mark may be consigned to the past, though Fidelity economist Anna Stupnytska suggests inflation is likely to hit the 2% in 2017, before overshooting and peaking sometime in 2018.
“With personal incomes growing around 2% in nominal terms, it will not be long before real income growth hits zero, hurting consumption,” she says.
“Against the forces of sterling depreciation, a Brexit-related slowdown in activity and consumer demand should provide some offset, keeping inflation in check as we move into next year. But these are unlikely to be sufficient to completely counteract the impact from higher import prices.”
