Tuesday, 18 May 2010

Inflation on the rise, still

Some of my numbers in the post below are out of date already. New inflation data is out. In the year to April, the consumer prices index (CPI) rose by 3.7 percent, up from 3.4 per cent in March.

In the year to April, the all items retail prices index (RPI) rose by 5.3 percent, up from 4.4 percent in March. The RPI annual inflation rate is now at its highest level since July 1991 (when it stood at 5.5 percent).

Clearly CPI at 3.7% is above the 2% target and also above the 3% allowable margin of error. The governor of the Bank of England and the new Chancellor have exchanged letters. The governor has said he thinks inflation will go down later in the year, and the chancellor has agreed it probably will - so no action required.

In truth they are still between a rock and a hard place. Rising inflation requires a hike in interest rates, but a hike in interest rates would choke off the economic recovery. However if they do nothing they get stagflation. In fact they've already got stagflation: economic growth is negligible, inflation is rampant.

All eyes on the emergency budget on 22nd June. (Is it just me, or isn't that a bit tardy for an emergency budget. I would have expected it much sooner.)

Merv's letter to George
George's reply to Merv
ONS release

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