MSE News: Inflation unchanged but prices still soaring

This is the discussion thread for the following MSE News Story:

"The RPI stood at 5.2 per cent, while the less representative CPI, which does not include housing costs, remained at 4.5% ..."
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  • edited 14 June 2011 at 11:14AM
    RenovationManRenovationMan
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    edited 14 June 2011 at 11:14AM
    This bears out what the BoE has been saying, that the rise inflation is a temporary situation. Hopefully we'll be seeing inflation going down from next month onwards. More importantly it strengthens the hand of those on the BoE who want to keep rates at 0.5%.
  • Sceptic001Sceptic001 Forumite
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    This bears out what the BoE has been saying, that the rise inflation is a temporary situation.
    I suppose it depends on your definition of "temporary" :(.Income tax was introduced as a temporary measure in 1798.
    Hopefully we'll be seeing inflation going down from next month onwards.
    Unlikely, with gas and electricity prices set to rise by 10-20% and no sign of any reduction of other commodity prices.
    More importantly it strengthens the hand of those on the BoE who want to keep rates at 0.5%.
    The BoE is sadly more interested in growth figures these days, so you are probably right about the base rate. Of course this will drag sterling down further, which makes imports dearer, adding yet more to inflation.
  • ReaperReaper Forumite
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    This bears out what the BoE has been saying, that the rise inflation is a temporary situation.
    The trouble is King has been saying that for years and has been consistently wrong. Amusingly the Bank of England pension scheme trustees don't believe a word the Governer of the Bank of England is saying and have moved 95% of the pension schemes assets into index linked investments!
  • ManAtHomeManAtHome Forumite
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    Bah - 'temporary' is so last year (and the year before that, and the year before that...).

    We're now in SOTI-land... http://www.bankofengland.co.uk/publications/quarterlybulletin/qb110202.pdf
  • gozomarkgozomark Forumite
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    Sceptic001 wrote: »
    The BoE is sadly more interested in growth figures these days,

    it isn't - its mandate is inflation, on a 2 year view. It has no mandate on growth
  • Sceptic001Sceptic001 Forumite
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    gozomark wrote: »
    it isn't - its mandate is inflation, on a 2 year view. It has no mandate on growth
    In theory yes, but it has allowed inflation to exceed its target for over two years. Actions (or lack thereof) speaker louder than mandates.
  • taxsavertaxsaver Forumite
    620 Posts
    Sceptic001 wrote: »
    In theory yes, but it has allowed inflation to exceed its target for over two years. Actions (or lack thereof) speaker louder than mandates.

    How exactly do you propose that the BOE should act then? It only has one tool and raising interest rates is pointless as inflation is being driven by commodity prices and tax rises! Raising interest rates will only ADD to inflation.

    The tool is only useful when inflation is being driven by excess demand caused by profligate consumerism which is surely NOT the case at present?
    If you feel my comments are helpful then I'd love it if you 'Thanked' me! :)
  • gozomarkgozomark Forumite
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    Failure to meet its target doesn't prove it was aiming at a different target.

    If the govt increases VAT now, or the oil price goes up now, BoE shouldn't increase interest rates unless it considers inflation in 2 years time will be above 3% - the impact on inflation over the next year is irrelevant - now you can argue wether BoE is set the right target - maybe it should have a broader remit (the fed's mandate includes growth), or that its inflation target should be a blend of 1 and 2 year targets, but you can't criticize the BoE for that but the target setters
  • edited 14 June 2011 at 2:22PM
    AirlieBirdAirlieBird Forumite
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    edited 14 June 2011 at 2:22PM
    This bears out what the BoE has been saying, that the rise inflation is a temporary situation.
    Does it? You have to look behind the headlines and if you did you would realise that the annual inflation rate would have actually increased this month compared to last if it was not for when Easter was this year.

    The annual change in transport costs, and particularly air and sea fares, fell massively this month compared to last month. This is because when transport costs were collected for April 2011 they were during Easter when many fares were higher due to the obvious increased demand during holiday periods. Easter did not fall in the price collection period last year so the same fall in fares between April and May did not occur. The effect of this is that April's inflation figure was higher then it should have been because of a particular event. If price levels were taken for a few days earlier or later then they were, you would actually have gotten a lower inflation figure for April. Therefore if we take out the effect of Easter April's true annual inflation rate was actually lower, and so this month the annual inflation rate has increased probably around 0.2 to 0.3 percentage points.

    Taking price levels during a holiday period when those prices would not be representative of the month seems to be very bizarre. Surely as when Easter falls differs every year, you need to take account of it in your methodology otherwise you're not comparing apples with apples.
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  • Sceptic001Sceptic001 Forumite
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    gozomark wrote: »
    Failure to meet its target doesn't prove it was aiming at a different target.
    Maybe you are right, in which case the BoE is guilty of staggering incompetence. Two years ago it was forecasting inflation would be below target by now. Most other forecasters were far more accurate, predicting higher inflation.

    One year ago it was forecasting inflation would be below target by 2012. Now it admits it will still be above target. The BoE's credibility is rapidly disappearing down the toilet.
    gozomark wrote: »
    If the govt increases VAT now, or the oil price goes up now, BoE shouldn't increase interest rates unless it considers inflation in 2 years time will be above 3% - the impact on inflation over the next year is irrelevant - now you can argue wether BoE is set the right target - maybe it should have a broader remit (the fed's mandate includes growth), or that its inflation target should be a blend of 1 and 2 year targets, but you can't criticize the BoE for that but the target setters
    But you can criticise the BoE for getting its forecasts wrong.
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