There is a lot riding on the course of inflation in the coming months.
Rishi Sunak has made halving the rate of price increases one of his five key pledges to the British electorate. It would be a political disaster for the Prime Minister if this is not achieved.
And of course without the Consumer Prices Index (CPI) decisively trending downwards the Bank of England cannot even begin to think about lowering interest rates.
So the overnight news that OPEC+ plans to slash production, which sent oil prices soaring this morning, must have been as welcome a start to the working week for the high command of the British economy as the proverbial hole in the head.
Dearer oil will start feeding through to forecourt fuel prices in a week or so with knock-on effects on costs throughout the system.
Meanwhile Tesco boss John Allan did not exactly help soothe nerves when he refused to be drawn on when he thought rises in food prices — currently at a 45-year high of 18.2% — will peak.
The CPI has been running at or close to double digits since last summer and February’s shock rise shows stickiness is now a real problem.
The danger is that the longer it stays elevated the harder it will be to persuade workers to accept lower pay awards and the more the embedded the wage-price spiral becomes.
Inflation will inevitably fall after April as last year’s massive energy bill hikes start to dropout of the equation. But by how much?
The Office for Budget Responsibility’s latest forecast of 2.9% inflation by the end of the year already looks in peril less than three weeks after its Budget Day publication.
