Wednesday, 13 April 2011


The slowing in the inflation rate was unexpected and good news. It means that the pressure is off the Bank of England to raise interest rates for now. Given that most households now have variable interest rate mortgages this will at least delay a further squeeze on household incomes.

What seems to have happened is that consumer resistance to higher prices persuaded retailers to reduce some prices. However, other cost pressures remain. The oil price goes relentlessly upwards. A 10-15 per cent in electricity and gas prices is likely in early summer.

Also most consumers don't perceive that inflation is not rising so quickly. This is not surprising when the cost of so many items is still going up. However, against the background of high unemployment this may not translate into significant upward pressure on wages.

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