Inflation Continues To Rise
Last month inflation jumped from 3.8% to 4.4%, with food prices having gone up 13.7% in the last year. The MPC will not be able to reduce the base rate in such circumstances. The glimmer of good news is that oil prices have come down recently.
Last week the Bank of England held interest rates at 5%. This week the inflation figure has risen to 4.4%. As this is well above the Government target of 2%, any thoughts of an interest rate cut in the next few months have all but disappeared. With this, hopes of cuts in mortgage rates (particularly variable rates) have also diminished.
The official measure of inflation is the consumer price index (CPI), which rose by 0.6% from 3.8% last month. The retail price index, which is often used in pay negotiations, went up from 4.6% to 5%. The CPI figure was the highest since it began being used in 1997, and the monthly jump is also a record.
Food prices are mainly to blame – these have jumped by 13.7% in the last year. However, with food and energy having been blamed for higher inflation in previous months, there could now be secondary effects influencing the continuing rise. In spite of the recent reduction in oil prices it looks as though inflation is set to get above 5% in the autumn.
The Monetary Policy Committee (MPC) of the Bank of England is duty-bound to try and keep inflation close to target. Although they might consider an interest rate hike, they might try and hold the rate at 5%, expecting the economic slowdown to slow inflation down in the next few months. A rise in interest rates would only heap further misery on mortgage borrowers and worsen an already struggling housing market.
One of the biggest recent problems has been the rise in the price of oil and the consequences for car drivers, and all other oil users. This eventually has knock-on effect on nearly all prices. The price of oil has recently eased, but a drop in prices seems to take longer to reach the pumps than a rise. A cut in fuel prices at the pumps will come as welcome relief.
