IoD: Plateauing inflation will frustrate businesses

Responding to the announcement that Consumer Price Index (CPI) was 2.4% in May, unchanged from April 2018, Tej Parikh, Senior Economist at the Institute of Directors, said:

“The plateauing of inflation – driven by higher fuel prices — is likely to frustrate households and businesses. Indeed, high oil prices are a temporary setback for the economy at a time when wider cost pressures appeared to be abating.

“Consumers would have been relieved by recent falls in inflation, but the pick-up in pump prices combined with a slowdown in wage growth – reflected in yesterday’s labour market data — remind us that the cost of living remains strained.

“Meanwhile, the increase in producer input prices largely reflects the impact of more expensive crude oil, and suggests there will yet be some pass through to consumers over the summer months, which may even lead to an increase in inflation.

“The latest inflation data is unlikely to alter the Bank of England’s likely strategy to ‘wait and see’ for more data at its meeting next week. Indeed, the MPC has tended to look through oil shocks in the past, and with employment continuing to rise, alongside the rebound in economic activity since Q1, the Bank is expected to press ahead with a rate rise in August.”