Tuesday, 15 July 2008

Inflation getting worse

Today we have the inflation numbers for the year to end-of-June. They don't look pretty:

CPI.....: 3.8% (up from 3.3% last month)
RPI.....: 4.6% (up from 4.3% last month)

In case you'd forgotten, the CPI target is 2 percent, and its absolute upper bound is supposed to be 3 percent. It's roaring away. The Bank of England thinks it might hit 4% by the end of the year; I think if it's still under 6% we should count ourselves lucky.

It's only been a couple of days since the MPC met at the Bank of England and took a sanguine view that inflation was not a problem and interest rates could be left at 5%. This seems like a complete abdication of their responsibility. I don't think they really care anymore.

We have also had Alistair Darling all over the TV and radio asking for pay restraint to contain inflation. (So inflation is a problem after all, huh?) What he seems not to "get" is that the inflation in the UK is coming in from abroad; oil and food prices are rising due to increased consumption in the Far East. Pay restraint in the UK isn't going solve that; if anything it would make the pain worse. Only a base rate rise to stoke the value of sterling can fix this problem. Although cutting taxes would offset the damage to some extent.

Is the man stupid, or something?

No comments: