Consumers predict higher prices

The high cost of living against minimal pay rises is causing consumers to increasingly expect prices will rise over coming months, according to the latest Consumer Barometer from Lloyds TSB Corporate Markets.

The survey of 2,000 consumers in March found 51 per cent predicted prices will rise in 12 months' time compared to 48 per cent in February. The balance of consumers who predicted higher, rather than lower, prices rose for the third consecutive month, up 8 per cent in March to 35 per cent.

When asked what the official rate of inflation would be in a year's time, consumers estimated 4 per cent, up from 3.7 per cent in February. This was the first increase in the estimated figure since November 2008.

Consumers increasingly believe interest rates will also rise over the next 12 months. The percentage of respondents that predicted interest rates will be lower in 12 months' time fell 7 per cent to 11 per cent in March. This was the lowest figure since July 2008. The balance of consumers who predicted interest rates will be higher, rather than lower, grew for the fourth successive month to 45 per cent up from 27 per cent in February.

Trevor Williams, chief economist, Lloyds TSB Corporate Markets, said: "Even though actual CPI surprisingly rose to 3.2% in February, all other data suggests prices will be coming down. For example, the economy continues to weaken and utility firms have signalled their intention to cut prices.

"But it is not surprising that consumers still feel prices will rise. For many the cost of living, such as food and rail fares, remains stubbornly high; particularly as pay rises are minimal this year. Unless consumer price expectations ease in coming months, this feeling, coupled with consumers' expectations that interest rates will also rise, means we are unlikely to see a positive change to their spending habits just yet."