High petrol and energy costs keep pressure on inflation
COSTLY trips to petrol pumps and higher energy bills are expected to keep pressure on price rises, holding inflation at 2.4pc for May, economists predict.
Official figures, due on Wednesday, are likely to reflect a “chunky monthly increase” in fuel prices, said Ruth Gregory of Capital Economics.
Petrol prices have risen by £0.06 per litre in the past month, according to the RAC. This is largely down to the 50pc increase in oil prices in the past year, jumping from $50 per barrel last June to nearly $80 now.
This rise will boost consumer price inflation, a much watched measure of prices in the economy which influences decision making about interest rates. Higher oil prices will also be felt in more costly energy bills, adding to upward pressure on inflation. The Bank of England’s most recent inflation report said inflation would hold its course in May, before rising to 2.5pc in June.
Bank research, released on Friday, showed that the public also expects inflation to hold steady.
This is despite the effect of the weaker pound wearing off. Fatter pay packets could also be playing a part in rising price expectations.
Victoria Clarke of Investec said: “If you look away from the headline number, stripping out bonuses, we do see them [wages] creeping upward.”
However, the “huge month-to- month move” from petrol and diesel prices would give the most significant boost. Ms Clarke forecast a rise in CPI to 2.5pc. At just above the Bank’s prediction, this would not be “enough to blow them off course” when it comes to plans for gradual interest rate rises in the year ahead.