And now for the good news.
Despite all those inflationary pressures building out there, inflation stayed on hold in December, while the old-fashioned Retail Price Index actually fell.
The Consumer Price Index – this is the index the Bank of England is supposed to target, stayed at 2.1 per cent. It’s been at that level now for three months, and at just 0.1 percentage points over target – it is about as smack-on as you could realistically hope for.
So maybe the Bank of E can reduce the rate of interest over the next few months, without that beast called inflation spitting out its venom.
Even more encouragingly, the core rate of inflation, that’s with things like food, energy and tobacco stripped out, is now just 1.4 per cent, that’s from 1.5 per cent two months earlier.
And while analysts were digesting all this rosy news, the British Retail Consortium put its pennyworth into the debate when it said that talk of an explosion in food prices is just “an alarmist scare.”
Its director general, Kevin Hawkins, said, “Poor harvests, unfavourable exchange rates and changing patterns of world demand have pushed up the price of some items but there is no food price explosion. The rate of food inflation is actually slowing, while overall shop-price inflation is stable.“
Ummmm. That’s all very well, but for how long do we dismiss rising food and energy costs as one-offs. Have the series of bad harvests been one-offs or are they symptoms of climate change. Is the current high price of oil down to one-off factors, and bound to fall, or is it down to the enormous level of demand caused by globalisation. Is the high price of food in part down to the usage of food crops to create bio-fuel, as an alternative to oil?
As we have said before, it’s a bit rich to dismiss rises in food and oil costs as one-offs, but then celebrate on falling prices in other goods, when in fact they are both down to the same thing. Globalisation has led to a fall in price of some goods, and a rise in others.
Yesterday, we told how the inflation rate for manufacturers’ output prices, that’s the level they charge on, was running at a 16-year high.
Then there are the expectations of a falling pound this year. There is a real danger this will lead to inflation too.
The next few months will probably see a rise in the CPI index, as utility bills go up. But the Bank of England does not need to worry about that. What it does now will only really impact on the index in 18 months’ time – and whether inflation is set to rise or fall in the UK in 18 months’ time, frankly, the jury is out.
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