5% CPI by Christmas?

[snowychap]

link

UK consumer inflation reached its highest level in 13 months driven by high food and fuel costs, according to the Office for National Statistics.

The Consumer Prices Index (CPI) hit 3% on a yearly basis in April, up from 2.5% in March. The monthly rate was 0.8%, the biggest leap since May 2001.

According to the figures, the Retail Prices Index rose to 4.2% from 3.8%.

The inflation data would probably stop the Bank of England cutting interest rates in the near term, analysts said.

Analysts had expected CPI to reach 2.6%.

"It was a pretty horrific headline number," said Lee Hardman, an economist at BTM-UFJ.

"It limits the scope for monetary easing from the Bank, it will be hard for them to cut in June."

Budget changes

However, some analysts added that the main drivers of price growth were fuel and food costs, which higher interest rates did little to control or rein in.

In the current climate of slowing economic growth and a weakening housing market it was unlikely that the Bank would hike interest rates as price pressures were not being caused by an overheating economy, the analysts said.

The CPI figure is above the 2% target set by the government, and increases the chances that Mervyn King, the Bank's governor, will be forced to write to the Chancellor to explain the accelerating rate of inflation.

He has to write a letter to the Chancellor if the rate of inflation tops 3%.

Of the 12 types of goods measured by the CPI, seven categories saw prices rise in April compared with the previous month. Alcohol and tobacco were amongst the gainers after tax increases set out in the last government Budget.

Another significant reason for the higher inflation data was a sharp increase in electricity and gas bills after the six leading suppliers raised prices.

Higher power and gas costs contributed 0.2% to the increase in the CPI figure, the ONS said.

Consumers and companies are already feeling the effect of higher costs.

On Monday, data showed that manufacturing output dropped by its biggest margin in 6 months during April, with firms hit hard by rising raw material costs.

The Bank is due to release its economic forecasts on Wednesday.

So, with food prices continuing to rise across the world and with some grim forecasts about the price of oil in the next six months, where do people see inflation being at the end of the year?

Back down a bit and hovering between 2% and 3%.

A little worse - over 3% and up to 4%.

Not looking good - over 4% and up to 5%.

Heading towards hyperinflation :winkold: - above 5% and climbing.

Oh and not forgetting: back on target - 2% or under.

[Richard]

I think in reality the rate of inflation is a lot higher than the reported figure

[Gringo]

2.1 - 3%

By december a lot of last year's energy inflation will have worked it's way out of the figures

I think in reality the rate of inflation is a lot higher than the reported figure

Yes and No. The CPI rate of inflation is as reported. However it's not the rate that is applicable to Joe Bloggs in the street, and should not be the one used for wage settlements etc. The EU have standardised on the CPI for reporting - that's fine, doesn't mean it's the one that reflects real life.

[snowychap]

2.1 - 3%

By december a lot of last year's energy inflation will have worked it's way out of the figures

By december we will likely be suffering the effect of the next round of energy price increases (which is why I went for the over 4% bracket).

[myb]

I think in reality the rate of inflation is a lot higher than the reported figure

agreed. fuel, energy and food prices have rocketed over the past few months beyond what the CPI recognises.

[Gringo]

2.1 - 3%

By december a lot of last year's energy inflation will have worked it's way out of the figures

By december we will likely be suffering the effect of the next round of energy price increases (which is why I went for the over 4% bracket).

But however they're weighted it obviously isn't enough as they didn't blow CPI over 4% with the last wave of increases. And then of course you've got Sales, Sales, Discounts, Bargains Galore

[Richard]

The CPI rate of inflation is as reported. However it's not the rate that is applicable to Joe Bloggs in the street, and should not be the one used for wage settlements etc. The EU have standardised on the CPI for reporting - that's fine, doesn't mean it's the one that reflects real life

Which is I think why I said

I think in reality the rate of inflation is a lot higher than the reported figure

[snowychap]

Another 20% hike in household energy bills (perhaps), a continuation of a 20-30% rise in food prices, Chinese inflation of around 8.5%(and rising).

Aren't the current 'bargains' partially responsible for keeping CPI down at 3%?

How low can prices on the high street be reduced?

[Jon]

.... Chinese inflation of around 8.5%(and rising).

how much more do you estimate i'll be paying for my lemon chicken and fried rice by the end of the year then, Snowster?

:winkold:

[snowychap]

.... Chinese inflation of around 8.5%(and rising).

how much more do you estimate i'll be paying for my lemon chicken and fried rice by the end of the year then, Snowster?

:winkold:

It'll still be competitive when compared to Chish'n'fips.

[snowychap]

Producer price growth at record

UK producer prices rose at a record pace in May, official figures show.

The Office for National Statistics said that output prices for sales of manufactured products rose at a rate of 8.9% in the year to May.

Input prices also shot higher, up 27.6% over the year. The rate of growth in input and output prices is the quickest since records began in 1986.

The rising cost of food, scrap metal and energy are pushing up the inflation rate even as the UK economy slows.

The data was much worse than many analysts had been expecting.

Jonathan Loynes, economist at Capital Economics, called the numbers "absolutely horrendous".

He said: "The increases are now so large that at least some portion of them looks likely to work its way into the High Street, even if retail sales slump."

He added that the producer prices report was "the clearest signs yet that the inflation problem is starting to spread beyond the food and energy sectors".

[LJRM050389]

I think in reality the rate of inflation is a lot higher than the reported figure

agreed. fuel, energy and food prices have rocketed over the past few months beyond what the CPI recognises.

I get taught that CPI overstates inflation by about 1%

[ianrobo1]

what people forget is that the inflation figures includes an whiole range of good like electrical, cloths etc. that are either stagnant or actually falling

[snowychap]

I get taught that CPI overstates inflation by about 1%

Run that by me again? :?

Did you mean overstates or understates?

Or did you mean RPI not CPI?

If, however, you are 'taught' exactly what you have said - who is teaching you that and why?

[snowychap]

what people forget is that the inflation figures includes an whiole range of good like electrical, cloths etc. that are either stagnant or actually falling

And that is why inflation figures are not rocketing out of control.

It will be interesting to see for how long prices of goods from developing economies remain low. Will there be something which pulls them back from the tipping point? If not, then the inflation in those developing economies will surely have to filter through to our economy.

[ianrobo1]

it's a good question but whilst their labour costs are so low I don;t think that will happen

and as China is strictly controlled and the masses are not allowed to have aspirations I don;t think there is immediate danger of this

but clearly the price of oil is a massive factor above all and despite the endless debates we have had until that can be solved either through technology, lower demand or more supply the same problems will remain

[LJRM050389]

I get taught that CPI overstates inflation by about 1%

Run that by me again? :?

Did you mean overstates or understates?

Or did you mean RPI not CPI?

If, however, you are 'taught' exactly what you have said - who is teaching you that and why?

Economics- N. Gregory Manikw and Mark P. Taylor

'the CPI overstates true inflation'

And im positive that in my lecture the figure given was 1%

[snowychap]

it's a good question but whilst their labour costs are so low I don;t think that will happen

and as China is strictly controlled and the masses are not allowed to have aspirations I don;t think there is immediate danger of this

but clearly the price of oil is a massive factor above all and despite the endless debates we have had until that can be solved either through technology, lower demand or more supply the same problems will remain

I would say that labour costs in developing economies would have much less impact upon export inflation than, say, massively rising food prices.

And when inflation in China is 8.5%, I'm not sure that being dictatorial about workers' pay is going to do anything more than slow the increase in costs for Chinese businesses.

I am aware that some economists believe there is still enough room for growth in productivity in those economies to keep prices of those goods the west imports down but there are others who are forecasting that China's next big export will be their inflation.

I would be wary of looking at those economies simplistically and saying their labour costs are low so they can still produce a shirt for Primark for next to nowt.

[snowychap]

Economics- N. Gregory Manikw and Mark P. Taylor

'the CPI overstates true inflation'

And im positive that in my lecture the figure given was 1%

Would you not also have been taught that these were the findings of the Boskin commission 12 years ago?

After the commission reported, there were adjustments to the method of calculating CPI in the US and therefore the biases inherent within the methodology investigated by the commission were reduced. I would guess that the methodology for CPI calculation is pretty similar throughout the world as it is a relative performance indicator - I would be rather skeptical at using the exact figures from an analysis of another country's data as the specific figure applicable to this country.

If everyone is still being taught that, as fact, CPI overstates inflation by 1% then I'm flabberghasted. Really.

Is there also a discussion on whether 'true inflation' (i.e. that which is apparently being so severely overstated by CPI) has any bearing on anyone's lives apart from a very few economists who probably rarely buy anything personally anyway?

[leviramsey]

Why not just do what the US does and create a core inflation metric that excludes things like food and energy?

I mean no one has to eat, drive, or be warm...