The era of cheap undies is over

So proclaimed The Sun this morning and they are right. Cotton prices have gone up by 45 per cent and this is likely to feed into a price rise of 5 to 8 per cent in the shops next year according to Next.

The latest CPI figures show inflation at a stubborn 3.1 per cent, down from its April peak, but well above the Bank of England 2 per cent target. Food prices in particular have risen, as well as clothes. With supply and demand pressures on food staples, some are predicting a double digit rise in food prices by the end of the year.

This has a number of implications for government policy. There is likely to be more resistance to a public sector pay freeze if real incomes are being eroded by inflation, particularly on basic items like food and clothes. It would also affect the cost of providing the state pension.