Monday, 10 December 2007

UK Inflation - factory gate prices rising sharply.

What were the monetary policy committee thinking when they cut rates last week. Well, they weren't thinking about inflation. Today, the ONS released the latest producer price data, which tore to pieces the Bank of England's feeble claims that inflation risks were under control. The annual increase in November was 4.5 percent. Producer price inflation is now higher than at any time since August 1991.

The news on input prices was even worse. Input price annual inflation rose from 8.5 per cent in October to 10.3 per cent in November. Of course, energy plays a large role in this series, and this largely accounts for the recent surge. Nevertheless, it won't be long before firms start passing on these price increases to consumers.

Oh I forgot, there is one price that is falling fast - house prices. Don't worry, the Bank of England is always there for the housing market. It needed a little boost, and the MPC delivered with 0.25 percent cut.

However, the housing market might need a further pick up in January. Will the MPC oblige? What the housing market needs, the MPC will provide. As for inflation, the MPC will prattle on about core inflation being under control, while the rest of us will see rising prices down at the high street.


speedtheplow said...

What has happened to the BoE? Anybody who eats, drinks, transports himself, pays utlities, or has a roof over his head knows that prices are going up around 10% p.a. How can they lower interest rates? I realize they have a debt crisis on their hands, but surely this is only going to exacerbate matters down the road.

lowbudgetlife said...

Yes, and even the Chinese Price Index CPI is moving rapidly ahead of target and just how much lower can throwaway DVD players and child-labour tshirts go to offset the soaring costs of luxuries like food?