Kate Andrews Kate Andrews

Inflation hits double digits. Is it out of control?

Forecasters have consistently underestimated the scale of price rises

(Getty)

Long gone are the days when politicians and experts dared to claim inflation was simply ‘transitory’. Now it’s hang-on-to-your-hats as prices spiral faster than anyone predicted. This morning the Office for National Statistics reveals that headline CPI inflation hit 10.1 per cent on the year in July. This double-digit figure takes inflation to a 40-year high, outpacing consensus yet again, which was 9.8 per cent.

That figure means all those horrors that have been discussed for months have become more immediate: the instability that comes with spiralling prices, the risk of stagflation, increasing fears of recession as consumers grow more cautious, not to mention the very real fear that people will struggle to afford basic necessities. But two problems stand out this morning as inflation hits double-digits.

First, concerns are rising that the Bank of England has, yet again, been too optimistic about when and at what figure inflation might peak. This has been a trend throughout the inflation crisis: the BoE’s forecasts have only been revised upwards so far, as it becomes clear that prices go beyond their expectations. This time last year, most of Whitehall was still in complete denial about the price hikes that were about to shake the UK. Since then it’s been a game of catch-up and a fairly unsuccessful one at that. Capital Economics predicts that today’s 10.1 per cent will put pressure on the Bank to go for another 0.5 percentage point interest rate rise in September, as the need to curb these price hikes intensifies. Market expectations (tracked on The Spectator data hub) are currently that rates will peak around 3.25 per cent, but staying above 2 per cent for the foreseeable future.


The other major red flag in this morning’s update is the source of these price hikes.


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