Andrew Neil: CPI inflation to keep rising this year

Receipt and money The Bank of England claims inflation will fall from early 2012.

Higher fuel, food and transport costs - something every household is all too aware of - have propelled inflation to fresh highs in September.

The CPI, the government's preferred measure, hit 5.2% (well up on August's 4.5%) while the more broadly-based RPI (which better reflects household spending patterns) shot up to 5.6% (from 5.2% in August), the highest for 20 years.

You can see why the government switched the up-rating of welfare benefits to the lower CPI!

Fuel bills are up 8.6% year on year, a major contributor to overall inflation and the severe squeeze on living standards.

Inflation will stay at these levels for the rest of the year and might even creep up further. The Bank of England maintains that it will then start to fall from early 2012.

Start Quote

The squeeze on living standards will ease a little when inflation starts to fall next year but most families will just be treading water”

End Quote Andrew Neil Daily Politics presenter

This is likely: the rise in VAT to 20% in January will slip out of the annual comparison in three months time; continued weak consumer spending will encourage price discounting in the dog days of the new year; and weak global growth will put further downward pressure on commodity prices, including energy.

Just how fast and how much inflation will fall in 2012 is another matter - and the current high levels continue to damage the economy.

The main impact of high inflation at a time of low or zero pay rises is further to intensify the squeeze on living standards.

Anaemic growth

When people feel their pay is not keeping pace with prices (and worry about losing their job) they tighten their belts and reduce spending.

This, in turn, reduces economic growth (consumer spending accounts for almost 70% of GDP).

So growth is likely to be anaemic for the rest of the year and well into 2012. The squeeze on living standards will ease a little when inflation starts to fall next year but most families will just be treading water: pay rises will barely match the lower inflation levels.

That's why growth in 2012 is projected to be modest too.

Andrew Neil Article written by Andrew Neil Andrew Neil Daily and Sunday Politics

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  • rate this

    Comment number 17.

    It is really becoming very difficult to maintain ones sanity during this crisis. There is the saying 'when in Rome...' but that does not mean that whilst in the lunatic asylum one should act like a lunatic. It is also the case that when everybody else is a lunatic the one sane person left can be made to feel very isolated. Of course QE must cease...soon we will have the danger of hyperinflation...

  • rate this

    Comment number 16.

    Andrew... are you covering the SNP conference ?
    Hopefully you are as we don't seem to have any political
    coverage of Scotland on the BBC site. Actually it is
    probably the only party conference relevent to Scotland now.

  • rate this

    Comment number 15.

    I agree, instead of more Q.E. why not give that money to the poor.e.g reinstate tax credits for part time jobs. Its easier to get a part time job(which gets you off benefits) once they've got one.The person will be more use to the world of work It will save money in the long run because they will either get second part a time job or a full time job, also they could pay for courses eg plumbing etc

  • rate this

    Comment number 14.

    My solution would be to substantially increase the National Minimum Wage. That would put more money into the pockets of people who are very likely to spend it, and the benefits of that increased economic activity would filter through the rest of the economy.

    The idea of putting money into the pockets of the poor is universally disliked by business leaders, but its the only solution I'm afraid..

  • rate this

    Comment number 13.

    The problem with Keynes is that people have to keep the money in the 'local' economy...outsiders will have to buy our goods whilst we must not buy theirs...if we 'grow' our economy...but buy Chinese goods then that will not work...let's write off debts...first one...our debts to China...just like they defaulted when the Communists took over...China has to start acting like a creditor


Comments 5 of 17



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