High petrol and en­ergy costs keep pres­sure on in­fla­tion

The Sunday Telegraph - Money & Business - - Business - By Anna Isaac

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.

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