I'm an economist – this is why your mortgage rates won't come down any time soon
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
Inflation is now down to 3.4 per cent. In all likelihood the Consumer Prices Index (CPI) will drop below 2 per cent by the summer. That is good news: it means that earnings will at last be running well above price increases.
However, do not expect any sharp fall in interest rates or the cost of mortgages. Yes, rates will come down right across the developed world in the coming months, including here. But the general cost of borrowing will remain much higher than it was from early 2009 and the spring of 2022, when the Bank of England kept its base rate below one per cent. Those days are long gone.
Why? First of all, this decline in inflation is not yet secure. The headline rate for the CPI is falling mainly because the huge increase in energy prices over the past two years is now unwinding. The oil price at $86 per barrel for Brent crude is actually a little lower than it was on the eve of Russia’s invasion of Ukraine in February 2022.
Expensive energy affected everything, from fertiliser and food through to transport and heating. Businesses had to pass those costs on. Now that is in reverse. Producer input prices – that is what companies have to pay for the goods and raw materials they buy – were actually 2.7 per cent lower than they were a year ago. Their output prices, what they charge for their products, were up 0.4 per cent. That is because they have other costs, notably wages, which are going up by more than 5 per cent a year.
There is good and bad news here. The encouraging bit is that the near-zero rise in output producer prices will feed through into consumer prices, and that is why most economists think the CPI falls to 2 per cent in the summer. It is possible we may get there before the US and Europe. The less positive news is that while goods prices are indeed rising very slowly, inflation in........
© iNews
visit website