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By Rebecca Burn-Callander Tuesday, 15 January 2013

Inflation stands at 2.7%. Again

It's like Groundhog Day over at the Office for National Statistics. Inflation has remained unchanged for the third month in a row.

Ah, inflation. Every month, just like the last, on her ship tied to the mast. According to the ONS, the consumer prices index in December remained at 2.7%.

Why is it not falling, you ask? Ah, it’ll be those pesky hikes in energy prices. Electricity prices were up 3.9% compared with December 2011, while gas prices were 5.2% higher. Without those extra pounds added to the cost of living, falling petrol prices (down 0.2% - hat tip to the Coalition for cancelling that fuel rise) and air transport costs (down 6.8%), could have taken inflation down a notch or two.

These inflationary doldrums are bad news for the Bank of England.  We’re still no closer to the mythical target of 2%, promised to us since late 2009. And we’ll be in the same boat come January if the price of food and drink keeps on rising. Still we’re a few leagues away from that terrifying inflationary peak of 5.2%, so that’s something.

Your average Brit is still out of pocket however. According to the latest data on average earnings, released in October, wages have risen just 1.3%. This leaves the consumer-led recovery looking less and less dependable. MT wonders if the Office for Budget Responsibility will be forced to rethink its forecast that household consumption will account for 0.5% of the UK’s 1.2% economic growth this year…

If you can raise the deposit, it’s a good time to buy a house though. In real terms (CPI-adjusted) UK house prices are 22% lower than they were in August 2007 (just 10% lower in London, however).

So what do the wise heads from the worlds of economics and finance predict for inflation in the coming months? Sarah Hewin, head of research at Standard Chartered, says: ‘The outlook I think is probably for inflation falling, rather than inflation rising.’ Victoria Clarke, an economist at Investec, counters with, ‘Inflation will rise above 3% over the coming months.’ Commerzbank economist Peter Dixon adds, ‘It's entirely possible that by mid-year we'll get a very sharp spike in inflation back above 3%.’

So, nobody really knows, then?

If inflation remains stubbornly high, policy makers at the MPC will shy away from further quantitative easing. With our economy wedged firmly in a growth rut, that leaves us all, just like Bill Murray, stuck in Groundhog Day.

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