Inflation up again
Inflation in the UK has increased again for the twelve months to April 2010.
The Consumer Prices Index (CPI) measure of price inflation has reached 3.7%, up from 3.4% in March. This is the highest level since November 2008.
The Retail Prices Index (RPI) measure of inflation, which includes housing costs, went up to 5.3%. In the month before it was 4.4%, and it now stands at the highest level since July 1991.
Food prices were a major contributor to both measures of inflation, according to the Office for National Statistics (ONS) who publish the figures. The volcanic ash cloud caused disruption which helped to push up food prices by 2.6% last month.
As a result of the official CPI measure being more than 1% over the Government target of 2%, Bank of England governor Mervyn King will now have to write a letter of explanation to the new Chancellor, George Osborne.
Whilst these inflation figures will not be welcomed by consumers, they have been anticipated. The latest Quarterly Inflation Report from the Bank of England predicted a short term rise in inflation before it fell back towards the 2% target later this year.
Assuming this is a short-term acceleration of inflation figures, the Bank Rate should remain at the historic low of 0.5% for the time being. To start increasing interest rates now would risk hampering economic recovery and also have minimal impact on the ‘imported’ elements of price inflation.