Businesses throughout the West Midlands will be hit hard following the shock rise in inflation to 5.2 per cent, the president of the Birmingham Chamber of Commerce has warned.
Michael Ward said: “It has largely been driven by rises in energy prices which have gone up rapidly in recent months.
“This will hit businesses hard as inflation eats into disposable income and savings and dampens consumer demand. This will also put pressure on wage settlements which have been rising slower than the rate of inflation.
“We still expect inflation to begin to fall towards the end of next year as previous inflationary pressures such as the VAT rise are not repeated.
“We would therefore urge the Bank of England to continue on its current course of holding interest rates at their current level and injecting money into the economy through quantitative easing.”
Ian McCafferty, CBI chief economic adviser, said: “The sharp rise in consumer price inflation to above five per cent was to be expected given rising utility bills. This will put household budgets under further pressure.
“We hope that this high rate of inflation will be shortlived. We expect inflation to ease back significantly through 2012 as the upward pressure exerted by this year’s VAT rise and commodity price increases fades away.”
Graeme Leach, chief economist at the Institute of Directors, said: “The first response to the latest inflation figures is ‘ouch.’ The second response is more considered.
“The Monetary Policy Committee always knew that inflation would head north of five per cent this year, but their main concern was the inflation outlook over the next two years.
“Hard though it is for many to believe, without QE2 the UK was facing deflation by 2013 because of the weakness of the money supply.
“Today’s figures in no way undermine the MPC’s decision to launch QE2. Don’t forget that in 2008-09, inflation fell from five per cent to one per cent in just 12 months.”
Tony Dolphin, senior economist at the think tank IPPR, said: “The Chancellor’s self-imposed deficit targets have just become that little bit harder to achieve.
“The September inflation number matters because it is used to uprate social security benefits from April next year, and also the state pension when inflation is above 2.5 per cent and the rate of increase in average earnings, which it is.”