Finance News

Inflation Falls But Worse on the Way

The rate of inflation has fallen in August, dropping to 2.5% in from 2.6% in July. The retail price index also fell to 2.9% from 3.2% in July. This is great news for consumers and households, who will find that their money maintains its worth that little bit longer. Although it still means that things are getting more expensive at quite a high rate, the gap between wage increases and increasing costs has narrowed.

The Bank of England currently estimates that inflation will fall below 2% by the end of 2012, a target they had set themselves and will be hoping to meet. They haven’t got everybody to agree with this though, and some key economic figures believe that the expectations are too optimistic.

One of the key factors that the bank are accused of overlooking is the likely rise in inflation from increasing food and fuel prices as grain and oil increase in price. Droughts in America and moves from OPEC mean that we’re likely to see inflation creep up again in the next few months, just as we’re approaching the December 31st deadline for the targeted 2% inflation.

The Chief Economist at the British Chambers of Commerce, David Kern, explains the situation: “The fall in inflation in August was widely expected, following setbacks in July. Current trends suggest that inflation will be down to 2 per cent at the end of the year, and will fall slightly below the target during 2013. There are risks however, that oil and food prices may rise in the coming months, which may put upward pressure on inflation again.”

It’s a difficult period for the economy and the bank and government will be paying close attention to figures like this. They are currently being judged poorly for their handling of recovery, and the storm clouds looming on the horizon won’t be relaxing them at all.