Retail prices index (RPI) inflation has registered a third consecutive month of very strong growth (external website), with the increase in VAT serving to contribute to rising prices in January 2010, according to the latest official data release from the Office for National Statistics (ONS).
The ONS data reveal that:
- RPI inflation rose by 3.7% over the 12 months to January 2010, this is up 1.3 percentage points from 2.4% a month ago, and from -1.4% six months ago (July 2009).
- Consumer prices index (CPI) inflation - the Government's target measure - rose by 3.5% in January 2010, up 0.6 percentage points on the previous month's figure (2.9%). The target rate is 2%.
However, some economic commentators expect the current spike in inflation to be short-lived:
- The Guardian's Nils Pratley sets out three key reasons why he believes such rapid growth in inflation will be "fleeting" (external website): "[T]here is spare capacity in the economy, pay rises are a rarity and unemployment is still high."
- Sunday Times economics editor David Smith also expects inflation to fall back from its current peak over the coming months, but at a slower rate (external website). Smith says: "I do think low inflation will be a medium-term legacy of the recession because of spare capacity. It usually is."
The latest rises in inflation are in line with the predictions set out by the Bank of England, last week. It said that it expects the most likely scenario for inflation to involve further sharp rises in inflation (external website). But after that, inflation could well fall back sharply, as "downward pressure from the persistent margin of spare capacity" [unemployment, in other words] reasserts itself as the key influence on inflation.
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