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PwC comments on ONS March 2022 CPI figures

13 Apr 2022

Jake Finney, economist at PwC, says

“Inflation soared to 7% in March, as war in Ukraine added to inflationary pressures. It is rare that inflation reaches such heights - the most recent occasion being in the early 1990s, and before that the early 1980s.  

“We expect that war in Ukraine will add around 1 percentage point to CPI inflation in 2022, largely due to rising food and energy prices as a result of disruption to global supplies. Were the EU to join the US in banning imports of both Russian natural gas and crude oil, then we could see inflation peaking in double digits.

“Surging inflation will compound the cost of living crisis. Our modelling shows that real wages could fall by around 2% this year, leaving the average UK household around £900 worse off. Meanwhile, the lowest earners could see their incomes fall by as much as £1,300.

“Inflation will get worse before it gets better. We expect inflation to peak above 8%, as the energy price cap rises by 54% in April. Our modelling shows the energy price cap could rise by an additional 38% in October. This would bring it to £2.7k, more than double where it was at the same time last year. 

“We only expect that inflation will return to target in 2024, as the impact of the war fades and supply bottlenecks have eased. This would see the Bank of England miss its 2% target for CPI for almost three consecutive years.”

Quarterly CPI inflation (year-on-year), 1970 to 2022

 

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David Bowden

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