We’re not in the danger zone yet: 3.5% is still a far cry from the epic levels of inflation seen last September, when the ONS reported a rate of 5.2%. And the mass discounting earlier this year did skew prices somewhat – remember the furore after Tesco reduced the cost of chocolate bars to 20p each? But with the Bank of England boffins predicting (read: hoping for) a hefty drop in inflation this year, this rise will be a cause for consternation.
Perhaps a stiff letter to Bolland, Clarke and Philips demanding a price freeze for the good of the economy would do the trick? ‘Upward price pressures are bad for the UK, chaps. Yours, Spencer Dale’ or something of the sort.
Rising inflation coupled with low wage growth means one thing: reduced consumer spending - never a good thing for an ailing economy. Not even the Olympics and Diamond Jubilee and the resultant sales boom in Union Jack memorabilia can’t save the day if households decide to tighten their belts en masse. And the numbers aren’t good: average pay is growing at a rate of just 1.4% per annum. Set against today’s inflation numbers, this works out to real pay falling by 2.1% per annum. Hold on to your credit cards, folks.
And it’s the staples that are getting more expensive: bread, meat cereals, fruit, and vegetables. At least energy prices are finally starting to drop, after tariffs were hiked across the board in February. Looking at the Retail Prices Index, the sister metric to the CPI, which includes mortgage repayments and council tax, inflation is falling slightly, to 3.6% from 3.7%.
Alas for government, the CPI is its measure of choice. And with inflation rising and the economy stubbornly refusing to grow, the Bank of England will face a difficult choice in May – more QE and risk higher inflation? Or leave the economy to stagnate. It’s a toughie…