Although this week's figures showed that consumer price inflation rose to 2.9 per cent last month, economists agree that it will fall from now on. Victoria Clarke at broker Investec Securities says it could even fall below its 2 per cent target early next year.
Some economists think this would help economic growth. One reason for this is that it would allow the Bank of England to loosen monetary policy even further. Ms Clarke expects another dose of quantitative easing next month. And many economists expect the Bank to give formal 'guidance' on the future of interest rates, pledging to keep them low for a long period. This could weaken sterling and reduce borrowing costs.
Falling inflation might stimulate the economy in another way, by putting an end to the long drop in real wages. "The squeeze on spending power should steadily ease," says Andrew Goodwin at Ernst & Young's Item Club. He adds that the strengthening economy - next week's official figures are expected to show that real GDP rose 0.6 per cent in the second quarter - should increase workers' bargaining power and so raise real wages.
Rob Wood at Berenberg Bank says this could start a "virtuous circle": a recovery in demand will allow labour productivity to rise, which in turn would raise real wages, which workers would spend thus further increasing demand.
There are, however, risks to this. One danger is that still-high unemployment might continue to hold down real wages: this week's figures showed that, on a measure which includes the economically inactive who would like to work and part-timers who want a full-time job as well as the formally employed, there are 6.24m not working as much as they want. A rise in real wages, says Chris Williamson at Markit "seems a long way off".
Even if real wages do rise, consumer spending might not do so proportionately. Households might take advantage of rising incomes to start reducing debt. And if inflation expectations fall with actual inflation, the savings rate could rise as expected real returns on savings improve.
A consumer-driven recovery is thus not assured. A better hope for the economy would be if companies start to spend their rising cash piles. And so far, there is little sign of this happening.
