When last month’s headline inflation figure was released, showing a rise to 10.1 per cent on the year, a little bit of optimism broke through the general discourse of outrage and horror: despite hitting double digits, might inflation be close to its peak? The main source of this optimism came from falling oil prices, which recently have been on a downward trajectory.
But that narrative is by no means the consensus. This morning, investment bank Citi reports its most recent inflation forecast – which it estimates will hit 18.6 per cent on the year in January. This is more than 5 percentage points higher than the Bank of England’s most current forecast of 13.3 per cent for October.
These rises in the energy price cap, Citi claims, will see inflation ‘entering the stratosphere’
Citi’s figure, reported by the Financial Times, comes from its predictions around the energy price cap rises in the new year: it expects the cap to rise to £4,567 in January and then by a further £1,000 in April. These rises, Citi claims, will see inflation ‘entering the stratosphere’.
While Citi’s number is on the high end of the forecast spectrum, it is by no means alone in exceeding the BoE’s estimates, as both EY and Goldman Sachs expect inflation to peak at least 3 percentage points higher than the Bank. But the numbers this morning build up even more concern around the next energy price cap this Friday, which is expected to hit around £3,500. As Katy Balls writes, this puts leadership candidates Liz Truss and Rishi Sunak under far greater pressure to make public the relief packages they are considering to help struggling households. But if inflation comes anywhere close to Citi’s predictions, our understanding of the economic pain to come is going to shift radically once again.
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