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Inflation keeps on rising

CPI annual inflation was 3.2% in October, up from 3.1% in September, to take it to a four month high. However, RPI inflation which includes mortgage interest costs and has a larger element of housing costs than the CPI, actually fell from 4.6% in September to 4.5% in October.

The recent trend can be seen in the Table below.

 

The Table shows that CPI inflation has never fallen below 3% this year, whereas the function of the Monetary Policy Committee of the Bank of England is to keep it within a 1% band on either side of 2%. This means that the governor of the Bank, Mervyn King, will have to write his fourth letter of explanation to the Chancellor this year as to why inflation is so high.

In fact, the largest upward pressure on CPI inflation last month came from fuel and lubricants where prices rose 1.8% in the month, compared to a drop of 0.7% over the same period last year. There were also upward pressures from financial services, games, toys and hobbies and alcoholic beverages and tobacco. On the other hand, food prices allowed for some downward pressure on the index, particularly from meat and vegetables.

The inflation figure is more than just a number, especially to the millions who are already out of work, and the many others who are experiencing wage freezes or uncertainty about the security of their jobs. Inflation at its current rate is eating away at the values of real wages and benefits in many parts of the country. On top of this, savers, many of them in retirement, are worse off at a time of historically low interest rates and rising inflation.

The UK is also performing poorly compared to the eurozone where last month prices went up from 1.8% to 1.9%, which is substantially lower than the UK’s 3.2%.

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Posted in Bank of England, Consumer Price Index, Inflation, Monetary Policy Committee

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