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Inflation bites back

17 May 2011

10:22 AM

17 May 2011

10:22 AM

 

Good job we didn’t unravel the bunting after last month’s inflation figures. Because today we discover that
CPI inflation rose again in April, by 0.5 percentage points, to 4.5 per cent — its highest level since October 2008. That drop in March does look like a blip after all. Even with RPI
inflation continuing to fall (by 0.1 percentage points), we seem to have returned to a grim, upwards trajectory. Most forecasters predict that inflation will keep on rising for the rest of this
year, outstripping wage growth along the way. The squeeze on living standards continues:


We have dwelt on the political problems this creates for Osborne before, so suffice to say that they will not be eased by one-month, one-off falls in the rate of inflation. It is the overall trend
that matters, and the overall trend is unforgiving at the moment. The Bank and the Treasury appear determined that interest rates be kept at emergency lows to stimulate growth — an
understandable enough position. But as a recent Citi briefing put it, in reference to Osborne’s plan to rebalance the economy, "rebalancing will be helped if interest rates are fairly low, but
does not necessarily need the rock-bottom rates required in the worst of the financial crisis." The recovery, such as it is, could be punishing in many regards.


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