The US has reported a large increase in its inflation rate. This is reflected through Europe with Germany now also over 5%. Recent figures in the UK follow a similar pattern at over 5%, it is the highest inflation rate since 1992. All this before the gas & electricity rises come into effect in March. The obvious conclusion – raise interest rates as a control lever. This will probably happen, however it isn’t a case of just raise the rates month after month, the economy is too brittle for that and it will push us into recession.
There are different forecast scenarios : inflation peaks then settles, inflation sprirals out of control or inflation flattens after a peak
BlackRock Investment Institute (a research firm) suggests scenario one, with a peak then a settling to around 3% for inflation is the most likely scenario. They think banks will live with inflation, rather than raising rates to significant levels.
Whatever happens, we are in for a bumpy year ahead with cost increasing well ahead of salaries.