UK inflation has reached 5.4%, which is the highest rate in the last 30 years.
According to many economists, this is the beginning of galloping inflation. They predict that prices will continue to rise in the coming months. The BoE expects inflation to rise to 6% in the spring.
The Office for National Statistics said that the consumer price index inflation rate for December, at 5.4%, was the highest since 1992. Accordingly, prices for goods and services in the United Kingdom were 5.4% more expensive on average in December than a year earlier.
This figure was a big surprise to analysts as they predicted an increase to 5.2%.
"Food prices again grew strongly, while increases in furniture and clothing also pushed up annual inflation," said the Chief Economist at the Office for National Statistics, Grant Fitzner. (Business Insider, 2022)
"These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year", he added further. (Business Insider, 2022)
The Chief Economist, Martin Beck who advises the EY Item Club, said that "inflation is likely to remain close to current rates in Q1 2022 before rising again in April". (Business Insider, 2022)
Such a rise in inflation in April is expected to result in a sharp increase in the UK's energy price cap.
"CPI inflation is likely to move to just over 6%, with the risks skewed towards a higher outturn," said Beck.
In his opinion inflation should ease in the end of 2022 and in 2023 with fading coronavirus crisis.
With rising inflation, interest rates are also expected to fluctuate. The Bank of England base rate is now 0.25%.
Global market strategist from JP Morgan Asset Management, Ambrose Crofton, said: "The Bank of England was already feeling uncomfortable about its monetary policy stance. Today's upside surprises to both the headline and core inflation readings will certainly not have helped.” (Business Insider, 2022)
"We think the Bank of England will hike 25 basis points in February as it continues on its steady path to higher interest rates." (Business Insider, 2022)
*Robertson, Harry (19. January 2022). Business Insider: UK inflation soared to a 30-year high in December — and economists say it's going higher. Last viewed on 19.01.2022 on https://markets.businessinsider.com/news/currencies/uk-inflation-december-cpi-energy-food-prices-bank-of-england-2022-1