The week ahead

Jun 13 2008 By Andrew Mernin

Inflation figures and trading updates from Sainsbury’s and Centrica should keep spiralling food and energy prices in the spotlight next week.

Bank of England governor Mervyn King may have to publish a letter to the Chancellor once the inflation figure for May is known on Tuesday.

Further rises in fuel and food prices mean the Consumer Price Index (CPI) is expected to rise above the 3% mark during May, the first time this has happened since March 2007.

It will trigger an open letter to Alistair Darling from Mr King, who has to explain why inflation has risen more than 1% above the 2% target, and what the Bank is doing to bring the measure down.

Inflation has been on a steady climb since last August, and jumped 0.5 percentage points last month to 3% - the biggest monthly rise for nearly six years. Surging gas and electricity bills, food prices and Budget tax hikes on alcohol and tobacco were blamed for the leap.

Industry input prices have remained high in May, pushed up by a continued rise in the price of oil which reached a new high of 139 US dollars a barrel last week - 40% up this year alone.

Official data earlier this month gave the Bank of England fresh inflation headache after revealing factory gate prices surged at their fastest rate for more than 20 years during May.

Soaring petrol, scrap metal and food costs caused a 1.6% rise in prices month on month - the biggest increase since March 1981, according to the Office for National Statistics (ONS).

Philip Shaw, UK economist at Investec Securities, is forecasting CPI to reach 3.1% in May.

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