Impact of Budget measures on inflation
The Office for National Statistics (ONS) has published some interesting data, predicting the likely effect of Budget measures on the Consumer Prices Index (CPI) and Retail Prices Index (RPI) measures of price inflation.
The document examines the likely impact of duty and taxation changes being implemented in 2010/11 on price inflation. Higher taxes on various goods and services will feed through into higher price inflation.
In summary, the total effect of Budget measures are predicted to be +0.30% on CPI inflation and 0.40% on RPI inflation.
One of the largest predicted contributors to this rise from Budget measures is fuel duty, which is now being phased in with three 1p rises this year. The first 1p fuel duty rise has pushed petrol and deisel prices to record levels.
At the start of this year we saw a predicted spike in price inflation, as various measures (including the return of VAT to 17.5% after a year at 15%) fed back into the system. Inflation now appears to be falling again, although both measures remain above the Government target of 2%.
The Ernst & Young ITEM Club has predicted that inflation should fall back towards the 2% Government target by the end of 2010. Assuming this happens, it will enable the Bank to maintain loose monetary policy with the Bank Rate at 0.5%.
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