The Bank of England governor says inflation is likely to fall “quite quickly” from late spring as he has indicated “a corner has been turned”.
Andrew Bailey told Business Live during a visit to South Wales that lower energy prices will help bring down inflation in the coming months.
The Office for National Statistics (ONS) said the consumer price index (CPI) inflation rate fell to 10.5% from 10.7% in December, another sign the cost-of-living crisis may have peaked .
There was a kind of fixed energy price level during the winter, but we expect it to fall fairly quickly after thatAndrew Bailey
Mr Bailey said the drop was “the start of a sign that a corner has been turned”.
“What we think is the most likely outcome is that (inflation) will come down fairly quickly this year, probably starting in late spring, and that has a lot to do with energy prices,” he told Business Live.
“There was sort of a set level in energy prices over the winter, but we expect it to fall fairly quickly after that, at least for a number of reasons.
“First, it’s a bit of arithmetic in the sense that of course it’s an annual calculation, so the big base effects from last year will fall out, and if nothing happens they will actually fall off pretty quickly, as we’ve shown in our monetary policy November report.
“The other thing that’s really happened in the last few months is that energy prices in particular and gas prices in particular have come down quite a bit since the start of winter.”
“Due to the way in which domestic prices in particular are calculated, this is not yet having an impact, but it will.
“And that’s encouraging and I think it’s a product that Europe has higher stock levels and we’ve had a warmer winter than we could have done. It means there is now more optimism that we will get through next year on an easier path (inflation).”
UK inflation continued to ease last month but cost pressures for tight-knit households remained high as food prices hit another 45-year high, according to the latest ONS figures.
Falling fuel costs were largely behind the slowdown in price increases, with the average petrol price falling 8.3p a liter month-on-month in December.
There was little rest for families, however, as the CPI was still in double digits and food and drink inflation soared again, from 16.4% in November to 16.8% in December, the highest since September 1977 .
Prices in restaurants and hotels also soared as hospitality businesses were forced to pass on their own rising costs, with inflation in the sector rising to 11.3% in December, the highest in more than 31 years.
The CPI has fallen since a stunning 41-year high of 11.1% in October last year as rising energy bills pushed up the cost of living.
It is expected to fall later in the year as the cost of living crisis takes its toll on the economy and a recession looms.
The government has also pledged to help halve inflation by the end of 2023.
The British Chamber of Commerce said that although inflation appears to have peaked, rising prices are still “by far the main issue” affecting businesses.
Economists believe falling inflation levels won’t stop the Bank of England from raising interest rates again in February, with Pantheon Macroeconomics calling for a further hike of 50 basis points to 4%.
https://www.belfasttelegraph.co.uk/news/uk/bank-of-england-governor-inflation-likely-to-fall-quite-rapidly-in-late-spring-42301465.html Bank of England Governor: Inflation should fall fairly quickly in late spring