Deutsche Bank said on Wednesday that it now expects headline consumer price inflation to peak above 6% in April next year, marking the highest annual rate of inflation since the Bank of England’s independence in 1997.
The bank reviewed its forecast after data released earlier by the Office for National Statistics showed that annual inflation surged to 5.1% in November from 4.2% the month before. This was above consensus expectations of 4.8% and the Bank of England’s forecast for 4.5% and marked the highest annual rate since September 2011.
Deutsche’s senior economist, Sanjay Raja, said headline retail price inflation is expected to push up to 7.7% year-on-year.
“And there’s some reason to think that inflation risks – at least for the very near term – remain tilted further to the upside,” Raja said. “Changes to inflation weights will only serve to amplify the rise in core goods, energy, and food inflation, with the 2022 consumption basket likely to be skewed more towards non-services.
“The good news, if any, is that as pressures rotate away from goods to services, we should see a more amplified drop in headline inflation – something we still envisage will come late next year.”
Raja said one near-term risk worth flagging is the possibility of further social restrictions that would result in the ONS resorting to price imputations for a short period. This could depress some of the volatility in price quotes, and therefore inflation.
“We will be monitoring this closely,” he said. “Looking ahead, however, the surge in inflation won’t disappear quickly. Forward-looking surveys continue to point to more upward pressure to come, with our DB Price Survey Tracker consistent with headline CPI pushing past 6% y-o-y and remaining elevated for some time.
“In fact, we now see CPI averaging over 5% y-o-y for the next three quarters. From a monetary policy perspective, the jump in CPI (+60 basis points above the Bank staff projections) should certainly leave the MPC in an uncomfortable place. Indeed, the combination of stronger October labour market data and November inflation persistence in and of itself should tilt the MPC’s decision marginally towards lift-off in December – despite the cloud of uncertainty cast by the Omicron variant.”
