Inflation could hit 15% in 2023

Its new analysis, in the dread of winter, comes ahead of the Bank of England’s next monetary policy report published tomorrow (4 August). The researchers looked at how the outlook for inflation has changed since the Bank of England’s last policy report back in May. 

It highlights how, contrary to many reports, global commodity prices have fallen substantially over recent months, with sterling oil prices seven percent below their 2022 peak. Some of these commodities have had even larger falls, with lumber prices 61% below their peak last year. 

But - for the UK - gas prices are wiping out any news from other commodities, with the current expected gas prices for winter 2022-23 being close to 50% higher than they were in the aftermath of the Russian invasion of Ukraine.

As a result, the Bank of England is likely to have a higher and later peak for inflation in its new forecasts this week, with the impact of the rising energy price cap meaning it’s now possible inflation could rise to 15% in the first quarter of 2023.

There’s also huge uncertainty about the longer-term path for inflation, but hopes that it will fall back to low levels by end of 2023 would require normalisation of monthly price changes in the near future. 

Resolution Foundation senior economist Jack Leslie says the outlook for inflation is “highly uncertain”, largely driven by unpredictable prices. 

He added: “While market prices for some core goods - including oil, corn and wheat - have fallen since their peak earlier this year, these prices haven’t yet fed through into consumer costs and remain considerably higher than they were in January.

“With gas prices continuing to reach record levels, both households and businesses will see large increases in their energy bills throughout the winter and into 2023. How long this high inflation will last is hugely uncertain, but the cost of living crisis looks set to last longer and hit households harder than previously anticipated.”