CPI hits 4.2%: we’ve collected experts’ views on what the implications might be


This morning’s announcement from the Office of National Statistics (ONS) showed that inflation is gathering pace at a faster rate than experts were predicting.

The Consumer Prices Index (CPI) rose by 4.2% in the 12 months to October 2021, up from 3.1% in September. On a monthly basis, CPI increased by 1.1% in October 2021, compared with no change in October 2020.

According to the ONS, this is the highest 12-month inflation rate since November 2011, when the CPI annual inflation rate was 4.8%. Price rises in education, transport, clothing and footwear, housing and household services, and restaurants and hotels were the largest contributors to the monthly rate.

Interestingly, ONS reported that used car prices increased by 4.6% on the month to October 2021, leading to a cumulative increase of 27.4% since April 2021.

What do the experts say?

But what do experts in the investment and finance sectors think are the implications of these high rises in the cost of living?

Steven Cameron, Pensions Director at Aegon, comments: 

“Following a dip in September, driven in part by the recovery of restaurant prices following the ‘eat out to help out scheme’, CPI continued its upward path soaring to 4.2% in the 12 months to October, driven by rising energy prices and supply chain issues.

“With rising prices, consumers should consciously think about what products and services they are buying as the value of the money in their pocket becomes increasingly threatened. Any festive cheer of a boost to purchasing power looks unlikely in the lead up to the period where incomes are at their most stretched. Borrowers, and particularly those who may have emerged from the pandemic in debt, will feel the squeeze on their finances even more so, during what is already a challenging time of year for many households.

“Those on fixed incomes, such as many pensioners relying on the state pension, will also face a real challenge in meeting higher costs in the coming months, particularly with the government scrapping the state pension triple lock next year. This will mean the state pension’s 3.1% increase in April will likely be far less than the rise in the cost of living at that time.

“The Bank of England have so far held off raising interest rates to ease the cost of living squeeze, but as the full post-pandemic picture becomes increasingly clear, the base rate may soon be lifted from its historic low.”

Robert Alster, CIO at Close Brothers Asset Management, says:

“UK-wide supply issues have pushed up prices and triggered a headline-grabbing jump in CPI; the Bank of England will be keeping a close eye on key indicators in the months to follow. Wage growth will be critical which, depending on October’s unemployment reading, will determine how consumption behaviour will hold up against climbing prices. October’s reading is vital, as it will be the first accurate read of a post-furlough Britain. The Bank will also need to see whether the supply chain tightness is transitory. More concerning though is whether long-term inflation expectations remain anchored; should expectations drift away from the 2% target, policy measures will lose their effectiveness and the bank risks losing credibility.

“As for the hotly anticipated December interest rate hike, we may see the Bank acting more cautiously than previously expected. Ultimately, the impact of rising inflation on consumer spending and confidence will be a critical measure of stability, and determine how hawkish the Bank needs to be; we may well see the rate rise kicked into 2022.”

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