Inflation Concerns Continue

Written by Sam Jones on 14 June 2011.

The Consumer Price Index is a basket of goods calculated by the government on a monthly basis and is used to calculate inflation within the economy. However, important and perhaps significant changes have been seen between April and May in the upward and downward pressures attached to the CPI. Retail price Index (RPI) levels which unlike the CPI include mortgage interest repayments, also remained high at 5.2% in the UK economy, unchanged from the previous month. This is likely to see a further decrease in the demand for mortgages and a mortgage broker within the country.

The Monetary Policy Committee (MPC) led by Mervyn King, is yet to reach its CPI target once more of 3% (+/-1). Nevertheless, despite CPI levels remaining the same within the UK, there were downward pressures through both a significant decrease in transport services within the UK economy, in addition to only a 0.4% increase in furniture and household equipment in the economy. This was compared to a rise of 1.2% this time last year.

Despite inflationary levels remaining at a two and a half year high within the UK economy, a rise in the Bank of England base rate is unlikely to be seen within the UK economy, with the government insisting on expansionary supply side and fiscal policies, choosing growth as a higher priority for the UK than inflationary levels. Just last week the MPC decided to keep the base rate at 0.5% within the economy, a figure which has remained since March 2009.

Rob Killeen, of ‘Capital Fortune’ – mortgage broker based in the City of London – claims: ‘It is no surprise that inflationary levels have remained high once more in the current market. The threat of national strikes, insecurity in the Middle East and a number of other factors continue to make it troubled times for those in the UK.’

The last month has also seen a significant upward pressure in the prices of food and non alcoholic beverages, with a 1.3% increase compared to a decrease of 0.1% between April-May 2010. With large upward pressures also seen in the price of alcohol and tobacco, the consumer is likely to be hit, despite CPI levels remaining the same from the previous month.

Inflation remaining high seems certain during a period of yet more economic uncertainty.

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