And so inflation hits 4.4 per cent, or 5 per cent if you would prefer to use the older retail price index measure. Furthermore, it seems inflation will continue to rise for some time, with a growing expectation that the CPI index could pass 5 per cent. If inflation measured by the consumer price index is more than 1 full percentage point above the 2 per cent target, then the Bank of England governor does of course have to write a letter to the chancellor. Well, now it looks as if the CPI index could actually rise by more than 2 full percentage points above inflation.
Food inflation is up to a truly worrisome 12.3 per cent, with meat prices up 16.3 per cent, breads and cereals up 15.9 per cent and vegetables, including potatoes, up to 11.1 per cent from a year ago.
The average price of petrol at the pumps increased by 1.2 pence per litre between June and July this year, to stand at 118.8 pence, and air passenger transport costs rose by 8.9 per cent, from just 5.4 per cent a year earlier. The good news on gas and electricity: bills were unchanged this year, but they fell a year ago, so they too contributed towards the bottom line.
To really rub salt into the wound, the increase in inflation from 3.8 per cent in June to July’s 4.4 per cent was the highest change since records began in 1997.
The news from the pipeline is not good either. Yesterday saw the latest revelation of producer prices, and both input and output prices are still way too high at 30.1 and 10.2 per cent respectively and on a non seasonally adjusted basis.
But, at least the input price index fell slightly on the month before – although only very slightly.
But remember this, annual inflation is determined by what goes on over the course of that year. When oil and food stop rising in price, it will take a year for this effect to be fully reflected in the figures, but when it is reflected, the result will be sharp falls indeed. And if food and oil prices continue to fall, as they have been doing over the last couple of weeks, CPI may even go negative.
Prices only go up in the long-term if there is sufficient excess money slopping around the system. Thanks to the credit crunch, fears about job security, and the squeeze on our discretionary disposable income, there is no spare money.
That is why it is likely the current inflationary spiral could turn to deflation.
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