The following article was written by Cebr’s Deputy Chairman, Douglas McWilliams.
It all looked so easy. When Rishi Sunak pledged to halve inflation this year most commentators thought that this was already locked in. The base for comparison was inflated and many prices were near their cyclical peaks – indeed energy prices had already fallen sharply and this was due to be reflected in consumer prices.
The government’s official forecaster, the Office for Budget Responsibility, as recently as March predicted an average rate of inflation of 6.3% for the calendar year of 2023 falling to 0.9% in 2024.
And yet we are now half way through the year and although CPI inflation has at least fallen back to single figures, 8.7% on today’s data, core inflation is still rising. Today’s data shows it has risen to 7.1% compared with 5.8% in France and Germany and 5.3% in the US.
Of the G20 countries only Argentina, Turkey, Brazil and Mexico have higher core inflation.
The persistence of core inflation and the increase in wage inflation (now running at 7.2%) suggests that inflation is likely to provide more persistent than the OBR (and to be fair, my own colleagues at Cebr, though we have been consistently less wrong than the OBR) had predicted.