IoD: ‘Inflation hovers at psychological 3.0% mark, but no need to overreact’

Responding to official inflation figures today, showing that the Consumer Price Index remained at its five-year high of 3.0% in October, Tej Parikh, Senior Economist at the Institute of Directors, said:

“While inflation hovers at the psychologically significant 3.0% mark – and it’s highest since April 2012 – there is no need to overreact.

“Price rises are anticipated to peak during this quarter, while the inflationary effect of the weaker currency is gradually fading. And so, inflation is expected to fall back over the coming year. Today’s data also comes in slightly below expectations, with a pick-up in food prices offset by a fall in fuel costs.

“Nonetheless, it appears as though the squeeze on households will persist over the winter and into next year as real wage growth remains weak. Subdued consumer activity will also put pressure on revenues, and firms will have to find ways to boost their productivity in order to accommodate higher wages amidst tight labour market conditions and high costs.

“Taken together, today’s figures are yet more proof – if it was needed – of the importance of boosting economic confidence and the investment outlook. As such, the Bank of England ought to maintain it cautious stance on raising interest rates further, while a business-friendly Budget next week – which supports costs, investment, and productivity – will be essential.”