Is inflation making a comeback?

14 August 2012

The CPI rose to 2.6% today which has caught people by surprise somewhat as the Bank of England had hoped, and indeed forecast, that price pressures were easing. Last month's figure was 2.4% and the rise to 2.6% has been mainly attributed to the increase in air fares.  Also the summer sales started early this year and so there has not been as much discounting on clothes and other consumer goods in the month of July.The most obvious immediate impact of the latest figures is that the rail fares are now due to rise by up to 11% on some routes as from February next year.  The price of oil has also gone up in recent weeks and the drought in the US is to push up food prices in the next month.  All in all we may be seeing price pressures increase over the next few months squeezing spending even more.I am not sure if the Bank of England or the Treasury absolutely have to make predictions but they have been so wrong over the last couple of years - Inflation, GDP, unemployment etc.