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

  • rate this

    Comment number 12.

    I have a policy recommendation. As the role of the Monetary Policy Committee has changed and expanded more than could have been forecast when it was introduced back in 1997 there now needs to be new checks and balances on its power. My suggestion for a change is that MPC members should stand for election as they are currently much more powerful than many of our elected representatives

  • rate this

    Comment number 11.

    Q.E does not work it just gives free money to banks, (to speculate on commodity markets) it also allows bank of england to buy government debt. It rips of ordinary people, in my opinion the financial crises is not a liquidity crises its a debt crises. The debt is just deing pushed up the system (banks- goverment--ecb-imf, there will come a point where it will not be paid back.

  • rate this

    Comment number 10.

    The link between inflation and growth is complex.It`s of benefit to government`s and debtors because it cheapens the cost of debt.

    Those on fixed incomes,wages that fall behind inflation,services whose funding is not index linked like the NHS,purchasing power falls.
    squeezing demand

    Monetarists believe a decline in debt secures growth as taxes
    fall.But lack of growth means debt is rising

  • rate this

    Comment number 9.

    The government are confident that the cold winter and ludicrous fuel bills will mean that this winter's cull of pensioners will be particularly successful.

    If it is then public spending on these economically unviable 'people' will drop. This will mean that public pressure to tax bankers and other school chums of those in the cabinet will ease.

    So the outlook for the new year is good.

  • rate this

    Comment number 8.

    For 4. Catch22

    State pension about £5500 p.a. x 5.2% (although Treasury says may be changed in Autumn statement)

    Average salary about £25500 x ?%

    If ?% is any more than 1% you win.

    The 8%+ increase in fuel prices this year has a far greater impact on pensioners as a proportion of income than employed people - especially following the reduction in Winter Fuel Payment last year.

  • rate this

    Comment number 7.

    I work in a low paid job for the NHS.Inflation out of control and I have to watch cuts that threaten my job.Where is the fiscal stability the Government promised.As I stated before I am taking a 5% pay cut year after year.Its time the coalition went to the people as they were not voted in to be a coalition .

  • rate this

    Comment number 6.

    Is it true that you can`t spend your way out of debt,-the Osborne mantra.

    Keynes proposed governments incurred debt to put people to work who`d buy goods meaning businesses would invest and so on.

    Doesn`t that mean rising debt? Well no because the effect of increased investment/consumption is multiplied through the economy ,tax revenues rise,debt falls further..

    Keynes multiplier

  • rate this

    Comment number 5.

    QE seems to help bankers, but hammers the taxpayer (joe public). more QE to help the bankers, hammered joe public.

    there is a feel of that people will be satisfied with less if they keep getting hammered.
    once again the 1% are ok.

  • rate this

    Comment number 4.

    I have never fully understood the difference between growth and inflation...and I do not think that I am alone...what must be understood that many pensions will rise by 5%...and that only tax will be paid...not any NI...many workers would love to get a 5% increase...but even then they will pay Income Tax and NI...however...any increase must be spent on UK products...but that will be inflationary.

  • rate this

    Comment number 3.

    Tony Mc and his gang caused this whole maggots dens in the first place!
    MoD civil servants run the MoD and have lost us 1 billion in the last 12 month? So who's got the sack?
    Tony Langham
    PS.hows tonys expenses?

  • rate this

    Comment number 2.

    The Bank of England has been consistently wrong in its inflation forecasts so why should anyone believe them now? Their job is to maintain price stability and control inflation. Mervyn King should resign for failing in his duties. It should also be remembered that the pensions of the BofE MPC members are index linked to RPI, so no wonder they're not bothered about inflation!

  • rate this

    Comment number 1.

    An utter mess.



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