Tuesday, February 15, 2011
Inflation hits 4%, and isn't coming down soon
Posted by David Smith at 11:00 AM
Category: Thoughts and responses

Inflation at 4% (consumer prices index) was at least no worse than expected, though up from 3.7% in December and likely to remain elevated for all of this year. RPI inflation, at 5.1%, was up from 4.7%, and underlines the squeeze on real take-home pay. RPIX inflation, the old target, was also 5.1%, up from 4.7%.

Not much comfort in these numbers. Looking at core measures, CPIY, excluding indirect taxes, was 2.4%. CPI inflation excluding food, energy, alcohol and tobacco was 3%. More here.

In his letter to the chancellor, required every three months if inflation is more than 1% above the official 2% target, Mervyn King said inflation would probably be below the target were it not for VAT, higher energy prices and the pass-through effects from sterling's devaluation in late 2007 and 2008.

However, his confidence that inflation will return to target in two or three years time seems less than it was and he does not attempt to conceal differences on the MPC. This suggests the committee is more split than in November, when only Andrew Sentance was voting for a rate hike. His letter is here.