What does oil price surge mean for wider inflation?published at 10:40 GMT
10:40 GMT
Dharshini David
Deputy economics editor
The week’s started with a blistering surge in oil prices – and another jump in gas costs on global markets.
And with it, talk of the mounting costs of filling a car, and the domestic energy price cap here in the UK jumping to perhaps more than £2,000 in July.
What does this mean for wider inflation?
It depends on the ultimate degree and duration of the increase in energy costs.
At current rates, economists are warning that predictions of inflation being maintained at the 2% target seem set to be derailed; it could be considerably higher.
But they’re not expecting a return to the double digit inflation seen just a few years ago.
The war in Ukraine also caused spikes in the prices of basic foodstuffs – wheat and edible oil – due to the role of Ukraine in producing those items. That is not the case now.
And food inflation doesn’t just affect pockets today – they are also the key determinant of our expectations of inflation in the future, and so affect behaviour. For example, asking for bigger pay rises, which in turn can keep inflation elevated.
This is, of course, a rapidly changing story.