Record Inflation Puts More Pressure on Families
Today’s inflation figures are depressing enough – the government’s favourite Consumer Price Index shows prices 4.5% higher than they were a year ago, up from 4.0% last month and the Retail Price Index is still over 5% (though it is down slightly from last month). Transport costs are still rising very quickly, rising 2.8% in just one month, 9.8% over the past 12 months; petrol at £1.34 a litre and diesel at £1.41 are at record levels.
One particularly worrying item is the figure for the CPI excluding energy, food, alcohol and tobacco. These are volatile items, and CPI excluding them is as close as the CPI gets to ‘core’ or ‘underlying’ inflation. A couple of years ago the Treasury tried to get the public sector Pay Reviews to use “core inflation” as their key cost-of-living measure – unions never accepted this, but it is fair to say that it gives us an insight into likely long-term trends.
So today’s figure is worrying: the headline is that this CPI measure is 3.7% higher than it was 12 months ago, the biggest percentage increase since the series began in December 1996. The Index is four points higher than it was 12 months ago, also the biggest increase ever. The month-on-month increase of 0.9% is also a record and the 1 point increase between March and April is also the biggest ever.
At the started of the year I worried that continued over-target results for the CPI would intensify the pressure on the Monetary Policy Committee to raise interest rates and this is just the sort of thing I feared. Higher interest rates would devastate families coping with wages that have been cut in real terms: they would have to pay higher mortgages and their jobs would be threatened. To the extent that we have an export-led recovery, it depends on a competitive pound and this would be threatened if interest rates rose more than a quarter point or so.
For six months the economy has shown hopeful signs as well as threatening ones, but this is seriously not good.