Inflation: some good news
Overall, today’s inflation figures are quite good – the headline rates are down for both CPI (0.3 points to 4.2 per cent) and RPI (0.2 points to 5.0 per cent). What is more, core inflation – excluding “energy, food, alcoholic beverages and tobacco” – has come down even more (0.5 points to 2.8 per cent).
But there’s some worrying points. First of all, non-core but vital elements of every family’s budget are rising faster than the overall average: food inflation was 6.5 per cent, fuel 6.5 per cent and transport costs an eye-watering 12.3 per cent. “Hard-pressed middle income families” are still going to feel the squeeze – wages are going up by less than the overall average and these items are all things we can’t cut back on much.
Secondly, as a Eurostat release a couple of weeks ago underlined, Britain’s annual inflation rate is very high by international standards. In May, UK inflation was higher than the EU average, the Eurozone, France, Germany, Italy, Ireland or Spain. In fact, only the Baltics and Roumania had higher inflation. Even if we look at 12 month average rates (a less volatile measure) the UK’s rate was the highest of any country west of the old iron curtain.
I’m still inclined to regard today’s figure as very hopeful, though. We had some poor economic news last week (NIESR forecasting GDP figures that come close to stagnation, the Report on Jobs showing permanent placements at their weakest rate for 22 months). Today’s retail sales figures from the British Retail Consortium showed that the volume of sales is not recovering and the trade deficit grew unexpectedly in May, up nearly a billion pounds from Apri.
So it’s clear that the last thing we need right now is anything that will depress the economy further – but when inflation is twice the Bank of England target month after month, the pressure for a disastrous increase in interest rates gets stronger and stronger. Today’s figures will ease the pressure on the Monetary Policy Committee a little and that has to be a good thing.