Tuesday, 18 May 2010

Inflation Starts to Bite Again

The BBC have reported that inflation is still rising - the official Consumer Prices Index (CPI) measure hit 3.7% in April, well above the Bank of England's 2% target.

More worryingly, the Retail Prices Index (RPI), a measure used for pay negotiations and indexation of pensions and tax allowances, hit 5.7%. Most of its indexation uses are capped at 5%, meaning that many people could face real terms reductions in their incomes, at a time when the Government is proposing to use tax rises to fund 20% of their deficit reduction plans.

Still, this is to be expected with the inflationary measures the Bank of England has been taking - £200billion of new money printed, and the Bank Base Rate has been in 0.5% for over a year now.

So, a budget deficit of £162billion, rising inflation and a still-fragile economy. George Osborne is going to have to tread very carefully.

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