In the News Teaching Activity – is UK inflation going to stay in its target range? (June 2024)

In this Economics Observatory article, the prospects for the future of UK inflation are given close consideration. Is inflation likely to stay within one percentage point of its 2% target?

Inflation was 11.1% at its peak during the UK’s cost-of-living crisis and it took till April 2024 to fall back into its target range. Most uncertainty about future inflation comes from the global geopolitical tensions with Russia and in the Middle East. The Economics Observatory article notes that much of the recent fall in inflation is because of previous price rises ‘dropping out’ of the calculation – 12 months ago prices of items in the CPI inflation basket looked much higher than the year prior to then. Up to this month a high monthly inflation rate drops out and a new lower monthly rate is brought in, keeping inflation falling. However, this is set to stop. Additionally, there is some domestic pressure on inflation coming from the services, reflecting higher wage costs in the more labour-intensive service sector. Rising owner occupier housing costs are being captured in the CPIH inflation measure. Worryingly core inflation was still relatively high at 3.9% in April - this is seen as a good indicator of future inflation. Further pressures on inflation could arise from the US-China tariff war that is still ongoing. These upward pressures on inflation go some way to explaining why the Bank of England has, so far, been reluctant to cut interest rates.

What are the future prospects for UK inflation? - Economics Observatory

1 Explain the difference between CPI, CPIH and core inflation measures.

2 Assess the domestic pressures that may push inflation upwards in future.

3 Assess the global pressures that may push up inflation in future.