The Bank of England has warned that the prices of food items will increase later this year following significant increase in prices of petrol, diesel and home heating costs. Mark Cassidy, director of economics and statistics, said that while higher fuel costs were already visible at the pumps and in domestic heating bills, the effects of the Ukraine war on food prices would become visible on the supermarket shelves in the second half of this year and continue into next year.
The BoE has revised its inflation forecast for this year up from 4.5 per cent to 6.5 per cent on the back of rampant energy price rise driven by the war in Ukraine. The warning of higher inflation and lower domestic growth comes just three months after the bank predicted a strong economic recovery from the pandemic slump, as consumer spending and employment grew steadily in late 2021.
The Central Bank bulletin warned shortages of fertiliser and maize, and higher commodity prices over recent weeks, would have knock-on implications for the agriculture sector and, ultimately, food prices.
Fertiliser prices also rose by 100 per cent last year and by a further 50 per cent on top of that since the outbreak of war; wheat prices went up 20 per cent last year and by a further 40 per cent since in the last seven weeks. The government is under fresh attack on next month’s scheduled carbon tax increase. The increase was worth just €1.40 a month to the average home but it would be offset by new government measures on energy costs.
The Central Bank has cut its domestic demand growth forecast for each of the next three years by 2.2, 1 and 0.9 per cent respectively, culminating with just 3.9 per cent growth in 2024 - down from 6.5 per cent last year. Inflation should fall back to about 2.8 per cent in 2023 and 2.1 per cent in 2024.
