Surprise rise in inflation shows downwards path to Bank of England’s 2% target will not be smooth

The unexpected rise in inflation shows it’s a long and winding road down to the Bank of England’s target.

Inflation going up to 4% from 3.9%(instead of a predicted drop to 3.8%) was a surprise, but a small one.

That easing off partially offset the overall rise in inflation too.

Now for the caveats.

The Ofgem price cap  rose this month by £94, meaning households face higher energy costs for the coldest part of the year.

And here’s the unpredictable part that could add an air of volatility to inflation: the  Red Sea conflict.

So far, there have been a  few headlines here and there about potential disruption to the transportation of goods, and with it a caution around a potential  impact on price rises  if there are sustained supply issues.

But it’s important to remember that this, so far, is nothing like the scale of the impact Russia’s war with Ukraine had on fuelling inflation, sending both oil and food prices higher.

Economists, in the main, are staying cautious about predicting any major impact on global inflation.

That said – the chancellor will keeping an eye on any major escalation in that region.

If nothing changes, and based on today’s inflation figure, not much has so far shifted in terms of economist predictions.

Most investors are still expecting the Bank of England to cut interest rates this summer (no change to the predicted month of May).

The more important question is where is the Bank of England on this?

Historically much more cautious.

The Bank’s governor, Andrew Bailey, said in December that it was  “too early” to speculate on interest rate cuts.

What today’s inflation figure has shown is how finely balanced it all is, where a month or two can get knocked off the expected course by government policy – for example.

While we are a long way from the  11.1% inflation figure of October 2022, it’s clear that the path downwards to the Bank’s 2% target will not be smooth.