These large rises will fall out of the annual comparison and this April’s price rises should be smaller. The 12.3pc drop in the Ofgem price cap on April 1 this year will on its own reduce inflation by 0.4pc. In addition, food inflation seems to have fallen sharply.
Forecasting inflation for the next month or two is largely a matter of arithmetic. What happens thereafter, though, is about economics. And the outlook is not all plain sailing.
Pay inflation has remained pretty high, with the latest figures showing it stuck at 5.7pc, far too high to be consistent with the 2pc inflation target. The recent large increase in the National Living Wage (NLW) is not helping, particularly since people slightly above the NLW will have seen their differentials reduced and will want some recompense.
Only last week, Huw Pill, the Bank’s chief economist, was emphasising the continuing threat from high pay inflation. It is indeed possible that pay inflation will stay high and that inflation will later rebound. But I doubt it.
Pay inflation is normally a lagging indicator. When inflation was driven up in 2021-2, pay was slow to respond and as a result, real incomes were squeezed. It has been slow to fall as this process has gone into reverse and real incomes have recently been rising.
Although the Bank will be worried that what happens to pay inflation will have a key bearing on what happens to price inflation, in the months ahead I reckon that price inflation will have a strong bearing on pay inflation. As inflation falls below 2pc and possibly even heads down towards 1pc, this will be a powerful drag on the rate of pay settlements, especially since the overall state of the labour market has been loosening.