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Gartmore expects inflation pressures to relent in 2009

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14/08/2008

Gartmore is predicting inflation pressures to yield in 2009, despite consumer price inflation rising to 2.4% above the Bank of England’s target rate in July.

The month-on-month increase from June (0.6%) was the largest since records began in 1997, with a surprisingly strong rise in food prices adding 0.3% to the annual rate.

Bank governor Mervyn King will be writing another letter to the Chancellor to explain away this latest data, but this won’t bring inflation down. The mathematics might though; even if electricity, gas and petrol prices stay at their current elevated levels, inflation should fall significantly next year as recent sharp price increases begin to drop out of the year-on-year numbers. And that’s before the sharp fall in the oil price since mid-July is taken into account.

Chris Burvill, manager of the Gartmore Cautious Managed Fund, said: “There’s a general slowdown underway. Oil has come down because demand has fallen.

“We expect the headline inflation numbers to remain poor for the next six months, but beyond that there is a high probability that inflation will start to fall.”

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