Inflation rises for first time in 8 months!

The Consumer Price Index (CPI) published today shows inflation at 1.5pc. The increase seems mainly due to the steep fall in oil prices last  year. Economists had forecast circa 1.4pc.  so no great surprises here.

Moreover, the broader measure of inflation – the Retail Price Index, which includes the cost of housing, is still 0.8pc lower than a year ago.

Mervyn King, the Bank of England governor, said last week that inflation is expected to rise short term over the Bank’s 2pc target in the next months as the sharp fall in oil and energy prices that occurred at the height of the financial crisis a year ago are not repeated. And of course the return to 17.5% VAT will also affect things.

Commenting, Stephen Whitlam, Head of UK Banking for Expense Reduction Analysts said “The Governor of the Bank of England and other spokespeople from his team have already foreshadowed this increase and my own feeling is that so long as the spike does not fuel wage inflation we will not see interest rates rise to contain CPI within the 2% target.”