The not so steady creep of inflation

John

Don't fall for the spin. The VAT rise has not stimulated inflation - it came in on 1st Jan, whereas these inflation figures are for December. The VAT rise will figure in next month's (even higher) figures.

David Blackburn

John, of course. Thank you, I've amended it.

oldrightie

I guess the future for the architects of this misery will be just fine.

BenM

We should have joined the Euro...

Alex

Not sure you can quite put this at the door of QE.

p.s. the alternative to the devaluation of sterling is to be Spain or Ireland, who are now having to restore competitiveness through wage deflation. Fancy that?

Chris Mumby

Back to the 70's with Stagflation then

2trueblue

Why would anyone with a brain think it was going to do anything else but go up. Watch it run in 2010. Thank you Liebore, same old story, let you in, you wreck it, let us suffer, and someone else try and sort it out.
The Liebores spin doctors have their work cut out to represent this in good light.

2trueblue

Alex, we have wages cuts, no matter how you present it the reality is the same, what you spend buys you less. Still miserable. Liebore always were crap at budgetting.

Dame DeVille

@Alex

Wage Deflation = wages fall relative to prices
Price Inflation = Prices rise relative to wages

You pays your money...

David Blackburn

Alex, 2trueblue is right. On QE, read David M Smith: wage reduction a consequence of the Labour market being squeezed by QE and stimulus, whic only favour public sector workers. To reduce deficit, public sector wages will have to be frozen. It's a disaster.

JONNY

I think we've all understood for some time that the most cynical, ostensibly painless and fastest way to pay off our massive debt is to speed inflation.
If it really gets a hold, Gord will be able to crow:
"Sods to you Cameron. That was the Debt that was. It's so easy, if you know the ropes. All you have to do is print the money stupid."
And he'll have checked his PM's Pension to make sure it is inflation-proof.

Gianni

Can I be the one to point out that the 2.7% inflation figure is the monthy rise. The yearly rise is well over 7%, things are begining to look v. Good for the govt/state (bad for the average joe) they want inflation as it means that thier debt in real terms becomes of less value in real terms. As average joes we need to preserve our wealth , gold, property, tinned goods, shot gun etc even debt (as long as you can derive the loan) The last thing you need is cash

R King

It rather reminds me of someone who gets into debt then goes overdrawn at the bank to pay off some of the debts. In the meanwhile still continuing to spend they get further in debt and the bank then refuses to lend anymore. Then sell off all the jewelry, next go to a loan shark...... eventually they are broke and homeless!!

How far do you think Brown taken us down this road so far?

Marcher Baron

You ain't seen nothin' yet! Ready the wheelbarrows!

wrinkled weasel

Who is flicking the mirrors here? Gordon went over to the CPI in preference to the RPI in order to mask aspects of inflation. Is the CPI fiddle proof, or can it still be massaged?

Liz Brown

........and let's not forget our forced contribution to the Brussels pot - not only did Tonneee give away our rebate for bugger all in return (CAP remains unreformed) but the poor exchange rate from £ to 's is also costing us a fortune

Any Colour but Brown

Time to buy Zim dollars, then.

Kevin Nellies

Blimey, guess if the only way is up for interest rates that's the end of cheap mortgages, but all is not lost with sterling surging at least Brits can return to Europe.

Lord Boyders

Are you telling me that interest rates might go up as well as down? Massive oh dear, might stop spending for a bit, see you in the distant future.

Lord Boyders

Yeah but, what are the contributors to the measures of inflation?

Surely it is only worth increasing interest rates if the targeted inflation is demand led? Or am I being stupid? What if inflation is generated by an increase in VAT, an increase in fuel costs caused by a hurricane, an increase in the cost of milk caused by foot and mouth, none of these will be remotely affected by the fact that nobody can afford them, they have to increase regardless of whether people are buying more of them. Interest rates is the most blunt of all tools to deal with inflation.

DavidL

My understanding is that this figure has been distorted by VAT to some extent as it reduced in Dec 08 and there was obviously no equivalent reduction in Dec 09. Next month we will have VAT added back on again which should increase CPI by approximately 1.4% The Government and the BoE who have been worrying about deflation all year (or at least using that as an excuse for QE) will then have an interesting exchange of correspondence about how inflation got so out of hand.
The assumption is that inflation will then moderate again but that is contingent on a whole range of factors we do not control such as the price of oil and other commmodities as well as the dollar and the Euro. Real interest rates are now severely negative and this cannot go on for long. Interest rates are going up and so are inflationary expectations. There is no such thing as a free lunch.

Robert Williams

I keep reading it is "widely expected" that inflation will rise above 3 per cent in January, forcing Mervyn King to write to the Chancellor to explain why inflation has risen by 1 per cent above the target.

"Widely expected"?? It is certain. In fact the index needs only to rise by less than 0.4% over the next month (it rose by over 0.5% in the past month) to produce an annual rise in excess of 4%. And next month's data will have to accommodate the return of VAT to 17.5%

Percy

Jeez, you'd think it was 2,700,000% reading some of the comments here.

General Zod

Percy, once inflation gets to 10%, prices double in seven years. That is why inflation figures that you might think low do matter.

BMC

Oh dear,

People who don't know what they're talking about having fits and predicted Zimbabwean levels of inflation in a few weeks.

The spike had nothing to do with inflation in Dec 09 and everything to do with deflation in December 08. These numbers are annual percentage changes remember.

And as someone else pointed out, people saying that VAT is important here aren't confusing when the rate increased. They are pointing out that it dropped to 15% in Dec 08, hence the fall in prices then is contrasted with Dec 09 and we get the effect we're seeing.