13 JUNE 2024
The UK consumer price index (CPI) has declined sharply from its 11.1% peak in October 2022 (blue line) thanks largely to a fall in energy prices, slower food inflation and weaker consumer demand. It registered 2.3% in April, a 3 year low.
The Office of Gas and Electricity Markets (Ofgem) has announced a further reduction in the energy price cap from 1st July, fuelling hopes that headline consumer prices will fall further during the second of the year.
However, the chart below suggests CPI readings will soon trend higher again.
It maps the producer price index (PPI) against CPI with the former tending to lead by 2-3 months. The PPI index started to rebound in February, having spent a few months in negative territory, suggesting CPI will also increase over the summer.
Encouragingly, the rise in both PPI (red line) and CPI is likely to be curtailed by the lower energy price cap, meaning a repeat of the 2021-2022 surge to double-digit inflation rates is a low probability outcome.
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