The annual rate of consumer price inflation (CPI) unexpectedly ticked up for the first time since it peaked last autumn. It rose to 3.5% in March from 3.4% the previous month. Core CPI, which strips out volatile energy and food prices, rose by 0.1% to 2.5%. Higher food and clothing prices were the key culprits.
What the commentators said
“Inflation just won’t do what it’s supposed to,” said Alen Mattich on WSJ.com. Instead of falling steadily towards the Bank of England’s forecast of around 2% inflation by the end of the year, it is showing “worrying signs of stickiness”.
The Bank of England risks “losing credibility on whether it is serious about inflation”, said Ryan Bourne of the Centre for Policy Studies. Inflation has been significantly above the official 2% target for the past two years. The Bank has consistently underestimated it and always ascribes overshoots to temporary factors such as VAT, commodity prices, or the weakness of sterling.
The usual excuses won’t wash now, said Simon Ward of Henderson. VAT isn’t the problem: the CPI excluding indirect taxation went up by just as much as CPI itself. The pound rose over the past year so it wouldn’t have caused prices to rise. And the boost from food stemmed largely from domestic food prices rather than global ones. In short, said Allister Heath in City AM, “the problem is excessively loose monetary policy”.
But to what end? People are beginning to suspect that the Bank is trying to get us out of trouble by eroding the value of our huge debt pile, which is fixed in nominal terms. It can’t make this too obvious lest foreign investors turn tail and send bond yields higher. But by continually feigning surprise and saying inflation is a blip, a country can string along, and ultimately rob, its creditors – and, of course, its savers.