Inflation edges higher but strategists hold out for 2012 fall and more QE

Strategists have predicted inflation will fall back to target in the New Year when the VAT rise is stripped out of figures, freeing the Bank of England to pump in more money to stimulate the economy.

Consumer Prices Index (CPI) inflation rose from 4.4% to 4.5% in August, in line with expectations, as higher energy costs fed through into prices. The rise left inflation at its highest level for three years, but commentators including Trevor Greetham, manager of Fidelity’s Multi Asset funds, expect year-on-year inflation to fall to between 1% and 3% as early as January next year, once this year’s hike in VAT drops out of the equation. “Stripping out food and energy costs, core CPI is likely to be at the bottom end of that range, supporting the additional monetary ease that appears in...