The inflation rate fell to 9.9% in August, which research consultancy Pantheon Economics said is better news – signalling that it shouldn’t exceed 11% come October before dropping afterwards.
In July the inflation rate was 0.2% above the Bank of England’s forecast, but it’s now in line with the Monetary Policy Committee’s prediction.
Samuel Tombs, writing in Pantheon’s UK Economic Monitor, said: “The drop in the headline rate was the first since last September and leaves us more confident that it will peak slightly below 11% in October and then fall very sharply in 2023.”
Spiralling inflation, driven by the events in Ukraine, is putting serious pressures on households in England.
As has been well documented it’s prompting Bank of England to raise interest rates, making buying a home an even more costly process.
Motor fuel inflation declined from 43.7% in July to 32.1% in August, which contributed to the moderating inflation rate.
Meanwhile the core CPI inflation rate exceeded the average August increase in the 2010s by just 0.2%.
Tombs added: “The impact of the MPC’s increases in Bank Rate to date have not yet had time to percolate through the economy and influence pricing behaviour.
“In addition, we see encouraging signs that the rate of price rises will continue to moderate over the next year.”
The CPI rate is expected to jump in October due to increases to electricity and natural gas prices, which are set to skyrocket by 27% month-on-month.
Food inflation will also rise further, alongside tobacco prices.
However the 80% hike to energy prices will at least be curbed by the government’s move to cap household energy prices at a typical £2,500 per year.
The inflation rate on core goods – meaning physical objects that provide a service – should soften towards the end of the year and throughout 2023.
Tombs concluded: “The MPC is boxed into a corner right now and must raise Bank Rate quickly to prevent sterling from depreciating further, and to signal to households that it is serious about tackling inflation.
“Nonetheless, the benign medium-term outlook for CPI inflation should convince the MPC later this year that they do not need to strangle the economy by raising Bank Rate all the way to 4%, as markets expect. We look for a 50bp hikes both next week and in November, and then no further action.”