A top policymaker at the Bank of England has warned that falling energy prices could still fuel inflation as consumers have more money to spend on other things.
Catherine Mann, a member of the monetary policy committee which sets interest rates, warned that core inflation could continue rising even if the headline consumer prices index figure continues to fall as expected, Bloomberg reported.
Inflation has fallen for three months in a row to 10.1pc after reaching a high of 11.1pc in October – and the Bank of England has raised interest rates for ten consecutive months to 4pc to combat rising prices.
Ms Mann said that lower headline inflation rates coming from falling natural gas and electricity costs “might be good from the standpoint of making households feel more comfortable”.
Speaking at an event hosted by the European Investment Bank in Luxembourg, she said: “On the other hand, what they aren’t going to spend on energy, they’re going to spend on something else.
“That translates something that I do not control, which is external energy prices, into something that looks a whole lot more like what I’m supposed to control, which is domestically generated inflation.”
Ms Mann, who is the most hawkish member of the monetary policy committee, has been pushing for higher interest rates even as investors start to focus on when the Bank of England will pause its fastest programme of interest rate rises in three decades.
Natural gas prices have fallen 40pc since the start of the year, prompting Ofgem to lower its price cap by nearly £1,000 from April, with bills then predicted to fall in July by nearly £900.
Source: telegraph.co.uk