Inflation rises to ten-year high
The cost of living has risen by three per cent, the highest level since records began ten years ago, new figures from the Office for National Statistics (ONS) show.
The increase in consumer price index (CPI) inflation has been largely driven by higher fuel costs, partly due to the chancellor’s fuel duty hike on December 6th. The cost of furniture and leisure products such as DVDs has also gone up.
The Bank of England’s monetary policy committee, which has been responsible for setting interest rates since the Bank was granted independence in 1997, had advance preview of the ONS figures when it decided to raise rates to 5.25 per cent last Thursday.
Today’s CPI figure is higher than expected but just short of the crunch point of 3.1 per cent where the governor of the Bank would have to write to Gordon Brown to explain why it was so far off the government’s target of two per cent.
However, the ONS has also revealed that the retail price index (RPI), another measure of inflation that is generally used to determine pay settlements and which many economists consider more reliable, is now at 4.4 per cent – the highest since December 1991.
Jonathan Said, senior economist at think tank Cebr, warned the RPI figures would fuel calls for wage increases by workers, meaning inflation could remain higher for longer. He said another interest rate rise now “seems an easy bet”.
Shadow chancellor George Osborne warned: “Britain is now suffering from the triple blow of rising inflation, rising interest rates and rising unemployment. No wonder the chancellor wants to escape the Treasury before his chickens come home to roost.”
But Tony Blair played down the news, saying: “Inflation has risen not just in this country but in most of the major countries because of rising energy prices, rising oil prices, which have doubled or tripled over the last few years.”
He told his monthly press conference: “This is a very common issue, it’s driven by these rising energy prices and will fall as the energy prices fall.”
The prime minister added that none of this should take away from the fact that despite the latest interest rate rise, rates were at historically low levels, employment and growth were high and living standards have risen for every section of the population in the last decade.
Liberal Democrat Treasury spokesman Vince Cable warned that many people were now “feeling the pinch” of the increased cost of living, and that when combined with rising interest rates – which hit mortgages and personal debt – it could be a real problem.
“It is inevitable that more families, who are affected by redundancies and up to their necks in debt, will fall into serious arrears leading to growing numbers of repossessions,” he said.
But the prime minister dismissed these, saying the current levels of personal debt were “sustainable” and adding: “It is for people to make decisions about their own personal circumstances.”
