The not so steady creep of inflation

As Mark Bathgate and Fraser warned, the economic crisis now has an added dimension: inflation. The government’s preferred marker, the Consumer Prices Index (CPI) rose to 2.9 percent in December from 1.9 percent in November, which as Andrew Neil notes is the biggest monthly rise in the annual index since records began. And the Retail Prices Index (RPI), used to calculate welfare payments and wage re-negotiations, rose to 2.4 percent from 0.3 percent. The underlying RPI rate rose to 3.8 percent from 2.7 percent.

 We are now seeing the long-term effects of Quantitative Easing and the use of debt to finance further government borrowing. A consequence of printing money is to devalue it – hence the collapse in Sterling and ever more expensive imports, notably crude oil, a commodity which itself has doubled in price over 12 months. With no current plans to arrest government spending and the VAT hike to kick in next month, the future looks miserable.