Inflation Figures Out For December
This article was taken from the BBC News Web site yesterday.
December inflation figures are at the high end of expectations - with the target measure of inflation, the CPI (Consumer Prices Index), rising by 3.7% compared to December 2009. But energy and food prices are responsible for most of the rise - indeed, the 1.6% increase in food prices between November and December is the highest on record.
No-one is happy that inflation has remained so far above target, for so long - least of all the Bank of England. With so many households seeing the effect on their shopping bills, you can see why David Cameron would want to signal recently, that he shares their concern. Indeed, the chances are that the CPI will rise even further in the next few months - maybe reaching 4% by February or March.
However, there is little sign that a majority of the MPC (Monetary Policy Committee) is minded to respond with an early rise in the base rate. They remember that this has happened before, in only 2008, when commodity price rises pushed the CPI up to 5.2%. At that time, above target inflation led to the MPC seriously contemplating an interest rate rise, just weeks before Lehman Brothers collapsed. The Bank of England then had to slam into reverse, with unprecedented cuts in rates.
At least, in 2008, the Bank had room to slash rates to support the economy. Those who say the MPC should keep rates low point out that there isn't that kind of leeway today, if the recovery falters. They also note that inflation itself could pose a risk to the recovery.
Asked to name the single largest threat to growth this year, most would probably say public spending cuts, and the recent rise in VAT. But the recent rise in the price of energy, food and other imported goods - not to mention increases in pension contributions and the like - will probably have a much larger direct impact on the disposable income of the average household than this year's squeeze in public spending.
In predicting moderate growth for the UK in 2011, the OBR (Office for Budget Responsibility) is assuming that consumers will continue to do their part, with little change in Britain's still low personal savings rate. But, in the face of this kind of squeeze, it is surely possible that households will instead seek to cut back, with negative consequences for growth.
Greengates Builders Merchants Accrington, Lancashire says “it doesn’t look good for the recovery of the Building trade with householders not wanting to spend money”.