The Office for National Statistics just released the latest consumer price index for January 2011. CPI inflation reaches 4% in January, up from 3.7% in December, in-line with forecast, and RPI inflation reached 5.1%, slightly above the consensus of 5.0%. The increase in CPI was attributed to the rise in value added tax (VAT) due to the coalition government austerity measures, as well as increase in oil prices.
Source: Office for National Statistics
The latest CPI inflation has reached a level which is double of the Bank target of 2%. Because the actual inflation number is more than 1 per cent higher than the stated target, the Bank of England Governor Mervyn King will have to write a letter to the Chancellor of the Exchequer George Osborne again.
On the whole, however, the CPI number is in-line with the expectation, and part of that, of course, can be attributed to the VAT rise. CPI inflation excluding indirect taxation (which excludes VAT rise, insurance premium tax and road fuel duty) was 2.4%, up from 2.0% in December, and CPI inflation at constant tax rate was 2.3%, up from 1.9% in December.
Although the Bank of England did not raise interest rate last week, I believe people are expecting rate hikes sooner than later. That would be, of course, very tricky because of the uncertain outlook of the economy amid government austerity.
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