Ernst & Young: Inflation is still running ahead of earnings growth

By Rob Starr, Content Manager, Big4.com

A senior economic advisor to the Ernst & Young ITEM Club has commented on recent CPI inflation figures whereby higher oil prices are clearly beginning to have an effect  and  base effects should push annual inflation rates down over the coming months.

Andrew Goodwin comments:

“We should see inflation drift a little lower next month, as last autumn’s big utility price rises start to drop out of the year-on-year calculation. However, there will be further upward pressures from petrol prices, which are now around 3 pence a litre higher than in August, and this is going to limit the extent that inflation drops back,” he said. ” We’re now looking at the CPI measure remaining just above 2% for the rest of this year but it could move higher if we see widespread rises in energy bills again this autumn or oil prices increase further.”

He also said the figures mean the anticipated strengthening in household finances is taking longer to come through than had been expected. Inflation is still running almost 1% ahead of earnings growth which, though significantly better than the beginning of this year, still represents a further squeeze on spending power according to Goodwin.

“It is likely to be early next year before we see any significant improvement in this area,” he concludes.