CPI inflation running at four percent, twice the bank’s target level is a problem
for the Bank of England’s Monetary Policy Committee which remains set against a rate increase. I suspect we’ll hear much about how this rise is partly prompted by the one off effects of
the VAT rise and the role of global commodity prices in driving inflation. But it is hard to get away from the fact that inflation has been above the two percent target rate for 14 months now.
(Personally, I’d favour the scrapping of inflation targeting).
The most immediate political consequence of this inflation is that it is hitting living standards. Wages are not rising at anywhere near the rate of inflation, if they were—as the Governor admitted the other week—the banks would have to substantially raise rates.
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