ONS Report: CPI hits 3.7% in December

    Well, the markets seem strangely buoyant this morning which is a little surprising to me given the 9:30am ONS Inflation report which included the nasty surprise of CPI increasing to 3.7% for December!

    That now completes the picture for 2010 with CPI having been maintained at more than 3% for the year (incl. just 1 month at 3%). (What is that BoE target again?)

    Really interesting to see all the opposing opinions on inflation over the days since the BoE kept rates on hold on Thursday.
    The respected Ernst and Young think tank are predicting that CPI will rise to 4% as early as February quoting a frightening compounding spiral of increase upon increase but, strangely, are also suggesting that 4% will be the peak and that the BoE should hold its nerve and not raise interest rates this year!

    Well, the forecast might be more realistic than the BoE who were expecting December inflation to rise to 3.3% (from 3%) and that it would peak at 3.5% through this year.

    Interesting statement on the thisismoney.co.uk: Inflation at 3.7% article which suggests that "At this level of inflation, £1,000 loses around half its value in 20 years".
    That is at the CPI rate of 3.7%.
    What about at the RPI rate of 4.8%? but then again that only affects the "small" minority of families in the UK who live in a house. You may or may not be aware that the RPI measure at least tries to include housing costs in its calculation whereas the CPI does not (thanks again for that one Gordon!).
    As ever, there are opposing "experts" to the BoE and Ernst and Young who now believe that CPI could rise to 5%!! But, to be fair I also remember the ambulance chasers forecasting that oil would reach £200 per barrel.
    There are also wider signs that market are factoring in an interest rate rise though. Sterling strengthened against the dollar overnight to £1 = $1.5956. Reuters reported that this was down to increased consumer confidence in the UK (welcome news but not sure where that has come from?) but also on the expectation that current inflation levels will result in an increase in interest rates (Reuters: Sterling hits 8 week high..).

    So, the clear consensus is that inflation will continue to rise but leaves the question open as to when, and what, inflation will peak at and then (the big IF!), whether the figures will come down of their own accord.

    On a final note, when considering the CPI at 3.7% (as opposed to the RPI at 4.7%), just remember that the calculation of CPI doesn't include: Council Tax; mortgage interest payments; buildings insurance and house depreciation (so as long you don't live in a house then...).
    There are a few more subtle differences linked to cost v. price as well but if the market for goods and services is competitive then the make up could be deemed the most important element.


    thisismoney.co.uk link: Inflation at 3.7%...

    thisismoney.co.uk link: December CPI what the analysts say

    link to Reuters.com: Sterling hits 8 week high...

    thisismoney.co.uk link: Interest rates must not rise experts warn

Post Title

ONS Report: CPI hits 3.7% in December


Post URL

https://national-grid-news.blogspot.com/2011/01/ons-report-cpi-hits-37-in-december.html


Visit National-grid-news for Daily Updated Wedding Dresses Collection

Popular Posts

My Blog List

Blog Archive