finance

UK inflation jumps to 30-year high of 5.4% as cost of living crisis deepens – business live


Undoubtedly some of the strength in goods prices will have reflected ongoing supply chain disruptions. There are some signs that these could be topping out at the moment, but at elevated levels. Over the course of this year, we would expect some clearer easing, helping to contain inflation again. But for now that remains elusive. Indeed, it is almost a given that inflation will rise further come April, when the next change in Ofgem’s utility price cap will take place.

Calculations by our utilities analyst that mathematically take into account how wholesale market prices have evolved, suggest a rise in the dual-fuel utility cap of 49% would be warranted. We estimate that would result in a boost to the inflation rate of 1.5%pts relative to keeping the cap unchanged.

In practice, however, it seems politically inconceivable that a rise in utility prices of this magnitude will be sanctioned. We expect the government to take a range of mitigating measures to limit the increase in the CPI inflation rate, and additionally to provide extra help for low-income households that stand to be particularly affected. The exact mechanism and size of the offset are, as yet unclear.



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