Coffee House

Inflation down, but the squeeze goes on

13 December 2011

Has Mervyn King’s downwards trend in inflation, promised for over a year now, finally arrived? After all, going by "">today’s figures, inflation has now dropped for two months running. CPI inflation is at 4.8 per cent, and RPI
is at 5.2 per cent. What’s more, we can expect them to fall even further once the effect the VAT rise is removed in January:

But I wouldn’t get too excited just yet, CoffeeHousers. Sure, most forecasters have inflation going down from here into the foreseeable future — but, don’t forgot, we’re still being subjected
to pretty high inflation, with CPI over double its target level. And, crucially, even by the OBR’s forecasts, inflation is set to outpace wages until at least the end of next year. So, as far as
our pocket books are concerned, the squeeze goes on:

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  • Forlornehope

    Remember, what brings debt down as a percentage is the growth of nominal GDP (that’s real growth plus inflation). Osborne’s delighted by this level of inflation; it makes his job much easier. However, he’s far too canny to admit it.

  • TomTom

    “A run on the Euro will mean a rise in the pound and a further downward pressure on inflation.”

    No, it will mean 180 Billion EURO in New York Banks holding of Euro Debt will be at risk. Already 20% Greek Bank Deposits have gone AWOL. 5390 British Private Pension Funds are under water because of ZIRP.

    Cross-collateralisation means everything is suspended in mid-air over a cliff face waiting to collapse. Sterling is irrelevant since most of its Bonds are bought by British Banks and Pension Funds with money created by the Bank of England and Pension Funds are going to have to renege on pension pledges because they cannot get the returns

  • Dimoto

    Peter Hoskin presumably cribbed this from the Today programme this a.m. where, after anticipating that “headline inflation” would fall, they explained that actually, it would rise.

    To convince the innocent listener, they wheeled on some west-country builder, who said “yes Gov, the price of bricks ‘n tiles is going through the roof Gov” (and I need a small increase on the price Gov).

    Must be the massive building boom currently sweeping the UK, mustn’t it ?

  • disenfranchised

    inflation’s not down. creative accounting’s up. simples…..

  • michael

    Why is everyone so scared of deflation?
    Having spent the last twenty years buying Chinese, we are all aware that the bulk of our purchases instantly become relatively worthless the moment we retrieve our plastic.

  • Holly ……

    Want to see ‘loneliness’?

    Check out guido’s blog on China & Europe.
    Having a currency crisis is fundamentally isolating…

    A post on here about it and any implications
    would be a nice thing.

  • TrevorsDen

    A run on the Euro will mean a rise in the pound and a further downward pressure on inflation.
    The fall out from Friday is that the Euro problem is still miles away from a solution and a break up of the Eurozone still likely.

  • Alex R


    You constantly make this point, but never suggest a solution…To what level would you have interest rates raised to?

  • Sean Haffey


    What are you smoking? The pound is strengthening against the Euro (1.18 = £1 as I write this) and this on its own will help bring down inflation.

    European politicians will try desperately to blame the UK and banking for their self-inflicted troubles, but you’d be crazy to believe them.

  • normanc

    Quick, fire up the presses!

  • Richard Spain

    The headlines are designed to deceive us into thinking that a drop in inflation means that prices are going down. They must think that we are pretty stupid.

  • Olaf

    Even if inflation dropped to zero the squeeze won’t get any easy it just won’t be any worse.
    So it will remain bad until wages start to rise again.

  • TomTom

    Inflation is a RATE of INCREASE which raises the Price Level and devalues Savings. If the measured rate falls it still requires DEFLATION to reduce the Price Level and restore the value of Savings.

  • telemachus’

    Yes but with the economic loneliness from last Friday it will shoot up again
    The rate was being brought down by our European partners before disconnection
    Cameron will rue the day

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