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US-based bank Citi, one of the largest banks in the world, has predicted UK inflation will hit a whopping 18% early next year. As consumers face a deepening cost of living crisis, the financial services group said not only is the Consumer Price Index (CPI) set to hit 18%, but the Retail Price Index (RPI) could breach 21%.
The CPI and RPI are both important indicators of inflation. But in order to understand how these numbers will impact us and our money, it is imperative to understand what they mean. With so much jargon being thrown around in the news and online, what exactly does it mean?
Well, in effect, CPI is the difference in the price consumers and households pay goods and services. RPI considers the change in retail prices.
Citi’s prediction is much higher than previously suggested by other financial bodies. The Bank of England stated earlier this month, that they believe inflation could reach 13% by the end of the year. The Resolution Foundation, an independent British thinktank forecast inflation could reach 15%.
If Citi bank stand to be correct, inflation would reach a figure seen last in 1976. This was the last time inflation was at 18%, when a shock hit oil supplies, resulting in huge ripples through both the UK and global economies.
Last week, gas and electricity saw wholesale price rises of 25% and 7% respectively. This prompted Citi to update their forecasts accordingly. Similarly, in another blow to the gas market, Russian state-owned operator Gazprom announced unscheduled maintenance on a mainline gas pipe into Europe on Monday.
This resulted in the next-day delivery price of gas to the UK to shoot up a shocking 37%. This is the highest recorded price since March of this year. This didn’t just impact the UK, however. Across Europe, gas prices rose more than 10%, to a high of €290 a megawatt hour (approximately £245).
With the new energy price cap expected to be announced by the energy regulator Ofgem this coming Friday (26th August), Citi predicts a typical dual-fuel tariff to hit highs of £3,717 from October. This is higher than other predictions of between £3,500 and £3,700.
Citi bank also predicted the price cap could rise to a mind-boggling £4,567 in January. What’s more, they predicted the cap reaching £5,816 in April 2023.