result of the financial crisis. it actually went negative in the us and euro area for several quarters on the back of lower energy and food prices, but it has since rebounded a little. measures of so - called “ core ” inflation in these countries have been trending down since the start of the crisis. the inflation record in australia has been similar to new zealand, except over the past few years as their economy avoided recession and some price pressures continued. in new zealand there have already been several government policy developments that have affected prices : the amended emissions trading scheme coming into effect on 1 july, changes to tobacco and excise taxes and acc charges all have had significant effects on inflation. despite this, consumer price inflation is likely to be close to 2 percent again in the september 2010 quarter. however, the most significant event is the increase in the rate of gst on 1 october. this will push headline inflation substantially higher. this mainly involves direct effects of gst on goods and services purchased. the figure shows the forecasts we published in the june monetary policy statement, implying some price pressure this quarter and a 2 percent price shock next quarter. since then our expectation of the peak in inflation has eased back to around 5 percent or just below. the figure shows that the spike in inflation is expected to be short - lived. the inflationary effects should be largely out of the system by later next year. our industry intelligence to date suggests that the gst increase is not being treated as a big disruptive event by the retail industry. pre - stocking does not appear major, nor does prepurchasing, and a last quarter sales fall - off is not expected. the spending effects of the gst increase are counter - balanced by the income tax reduction. as the economy grows, employment levels are expected to increase, and plant and equipment will be worked harder. as this occurs underlying inflationary pressures are likely to gradually increase, but consumer price inflation is forecast to remain comfortably inside the target band in the second half of our forecast horizon. higher headline inflation would obviously pose a challenge for monetary policy. there have, of course, been periods in the past when inflation moved temporarily outside the bank ’ s target band. the policy targets agreement with the government deliberately gives the bank the ability to “ look through ” temporary inflation spikes. the agreement defines the bank ’ s price stability target in terms of the consumers price index. however, it also instructs us to focus on the medium - term trend

where we talk with and listen to people from all walks of life. we set out some of the high - level themes from those conversations in a report from the chairs of the regional panels published today. what we hear from them is sobering. at a recent citizens ’ panel in leeds, for example, a young woman shared her story of trying to juggle studies with caring responsibilities for her parents. higher costs of transport, food and heating had left her struggling to cope, let alone to make the most of her time at university. in manchester, a carer told us how higher fuel prices had eaten into her pay as she relied on private transport to deliver vital services to vulnerable people. a woman at our panel in durham told us how she received her pay on a weekly basis and struggled to budget for her monthly direct debits. although she had health concerns, she felt unable financially to take time off from her full - time work. she told us she had cut back on all but the most essential purchases. we hear many such stories. for many people, this really is a cost of living crisis. let me provide some wider context. the uk economy has been hit by a series of significant economic shocks. these include the change in our trading relationship with the european union, the covid pandemic with associated bottlenecks in global supply chains, and the sharp rise in global energy prices related to russia ’ s brutal war on ukraine and its people. for the united kingdom, these shocks have eroded the terms on which we trade with the outside world. the prices we can get for the goods we sell have not kept up with the prices we have to pay for the goods we buy. this has made us poorer as a country. the fall in our national real income has manifested itself in a rise in the prices we have to pay for the things we buy as consumers. the developments in energy prices have been particularly stark. the impact of that is very clear in the data so forgive me for spending a bit of time setting that out too. chart 1 : cpi inflation projection with direct energy contribution based on market interest rate expectations the purple bars on this chart show that a big part of the rise in consumer price inflation has been caused directly by energy prices. but the chart also shows the almost mechanical flipside of that. in the mpc ’ s central projection, inflation falls quite sharply over 2023 as last year ’ s large increases in energy prices drop out of the annual calculation.