Sky News business editor Michael Wilson
So the expected mea culpa has been sent to the Chancellor from the Bank of England.
Ominously, the Bank’s Governor Mervyn King says that ‘inflation is likely to remain markedly above the target until well into 2009. I expect, therefore that this will be the first in a sequence of open letters over the next year or so.’
He predicts that inflation will rise to above 4% in the second half of this year – but has to couch that in the caution of ‘there are considerable uncertainties, in both directions, around this and any such projection is particularly sensitive to changes in domestic gas and electricity charges.’
In other words, most of it is the usual hostage to fortune. The Bank’s slight get-out clause is that the interest rate setters are ‘aiming to return inflation to the 2% target within its normal forecast horizon of around two years, when the present sharp rises in energy and food prices will have dropped out of the CPI inflation rate’.
And it will be a decline in income growth and an economic slowdown will gradually squeeze inflation out of the system.
Unfortunately it’s widespread knowledge that the official inflation figures are purely academic. The Consumer Price Index isn’t an everyman’s inflation guide, and doesn’t play particularly well to households struggling with sharply increasing food and fuel bills. And it also reflects the rate of change in prices – not how expensive things really are. In other words if the price of oil, god forbid, were to double next month, the inflation rate would be 100%. But if the price were at the same level next year, the inflation rate would be 0%, but oil would still be as expensive.
The City took it all as a fairly strong indication that interest rates won’t have to rise, as the Bank seems happy to live with higher inflation, and let the accompanying squeeze take effect.
As for the politics of it, the government looks set for an interesting autumn. An inflation rate of over 4% during the political conferences won’t play very well with the the party faithful, or Labour’s claim to be the party of economic competence. Meanwhile the Bank’s balancing act continues.
Sir
Whilst it must not be forgotten, we as a nation have enjoyed very low inflation for a considerable period, and as such the irresponsible actions of many a lender and utility companies have now come to fruition.
Alongside the many a scale upon which we measure such inflationary matters, we must not forget actions being conducted within the middle of many an eastern country, where the very same people have chosen to deploy other methods, ie hurt them in the pockets.
Inflation, shall be curtailed, expenses bought into line and booming repossesions busted in a more sympathetic stance.
As many a belt is tightened and blame shared, unless such fundamental issues are curtailed at source, long term gain will be hindered.
So, whether the loaf costs £1 or a can of beans £0.50, there are cheaper alternatives which will see us [Through The Fire-Chaka Khan]
Posted by: Khalid 17 Jun 2008 14:29:11
Good article Michael. I have not heard it mentioned before, but I was getting the message. In order to sell anything in my shop I have to lower prices or keep my low prices low non inflationary. I thought there was a cunning plan. I have some good news for you The pasty shop I have just been to is inundated with orders and sales, so true to form I will do a more thorough research , as it is a big part of Cornwall, I am hopeful of growth figures (financial), and will let you know. The local Radio, Pirate FM has just done ways to decrease fuel consumtion.. Drive at 56mph fill up in the morning or night as apparently it is denser and one would get more fuel. take excess weight out like rubbish....should save a fiver there. I have been thinking of ways to save money I asked my girlfriend to move in..the thought of home cooking and some warmth at night, She says how unromantic thinking of money.......Must have picked up hurt feelings along the way Michael
Posted by: Michael Cornwall 17 Jun 2008 13:20:12