Inflation predictions ahead of Wednesday's data

As CPI inflation laps the huge spike from 7% to 9% last April, inflation should comfortably plunge into single digits in Wednesday's report.

Wholesale and retail food prices have declined substantially from their highs, with supermarkets now reducing the prices of basic items such as bread and milk — this should ease the upward pressures on the heavily-weighted food index. Additionally, lower energy prices are beginning to flow through to households, and we may finally be seeing the start of deflationary energy prices. Meanwhile, on the labour front, April employment numbers indicate that wage pressures are beginning to ease, which may spell slower growth on the services front.

Provided the CPI print comes in around or below consensus of 8.3%, we could see rates peak, with the Bank of England shifting its tone to become more dovish. But if CPI surprises to the upside with a double-digit print, we could see further rate hikes given the central bank's tendency to assess lagging data.

If there's one thing you can count on, it's that serial derper, Andrew Bailey will be proven consistently and irrefutably wrong. He'll then put out some fatuous guff about how it's the Unions/early retirees/supermarkets/tooth fairy's fault for high inflation.

Inflation has likely peaked and the Bank of England is predicting a sharp decrease to between 7 and 8 per cent in its latest figures. But I can't say I have any great confidence in their predictions and I don't expect any cuts in the base rate until early next year. They'll probably increase to 4.75% before then.

Using interest rate hikes to control the monetary supply is a blunt, but neccessary instrument. Without them, the pound would have sunk against other currencies, driving inflation even higher.

Andrew Bailey isn't up to the job in my opinion. Admittedly he's been dealt a bad hand but he's played it terribly, getting every major call wrong.

First, he said inflation was only transitory. Then the base rate was increased too late and too slowly. Then just six months ago we were heading for the worst economic downturn in 100 years. Now we're not even expected to go into recession. For someone whose sole job is to control inflation, it's hard to know how he's still in post.

At www.MortgageShop.com we are praying that the inflation rate has dropped to single digits - the sight of this will hopefully allow the Bank of England to rest on their laurels on 22nd June, the next Monetary Committee meeting. As far as rate cuts are concerned we have long stated that we believe the UK operates better with a 4%-5% bank base rate, as it allows for greater control far more quickly, so we wouldn't expect a decrease. Once the base rate has stopped its increases we'd hope to see the mortgage market do as it does best and start to operate a fully competitive market potentially allowing for more innovation of products. To change the bank governor at this time would be foolish, Mr Bailey hasn't been in post long enough, without panics, to see how he can really perform I think. It is good to see the back of the Carney like courting of the press from the governor position.

Experts predict “circa” 10% inflation figures again – but whether just above or just below that 2-digit threshold – prices of everything are well above where they were 12 or 24 months ago and the price inflation that has done damage to business and personal finances is still in the cost of everything they consume. Businesses, and their suppliers, have already higher costs to manage and balance with their own price increases. Many client conversations are centred on how the businesses can support cash flow to deal with increased costs and we see a falling headline inflation rate being months (or maybe years) ahead of the pressure being lifted on companies dealing with existing increases in the cost of running and staffing their business.

UK inflation will likely drop quickly over the next few months. Firstly, wholesale energy prices have dropped. Secondly, there are expectations of a sharp fall in the price of imported goods. Lastly, the cost-of-living crisis has meant less demand for goods and services. This should lead to a significant drop in the rate of inflation, possibly to single digits. However, even with the drop, it is STILL possible to see a double-digit reading. Thus, the BoE is unlikely to cut rates anytime soon, and they could potentially hit 4.75% by the end of the year due to factors such as higher wage demand. If inflation remains sticky so will the BofE. Yes, the BoE raised rates aggressively, but it is vital to have low and stable inflation to maintain the value of money. A permanent high inflation rate will eventually erode wealth, and as Friedman said, "inflation is taxation without legislation." Therefore, I advocate that the Governor's actions have been right, despite being painful for us all.