Banking News Inflation Surges As Prices Rise 1569
Inflation surges as prices rise
14 May 2008 / by Rebecca Sargent
The Office of National Statistics (ONS) published the figures yesterday, explaining that the most significant contributing factors came from housing and household services, as a result of gas, electricity and oil price changes.
Standing at 3 per cent, the rate of inflation is now a whole percentage point above the Government’s target rate of 2 per cent. And, any further increases will result in the Bank of England‘s Governor Mervyn King writing to Alistair Darling to explain the reasons behind the rise.
As the credit crisis worsens, prices of household and essential goods are rising at a rapid speed. According to ONS statistics food prices have risen by 7.2 per cent year on year and petrol has risen by a massive 18.7 per cent.
Other commodity price increases such as alcohol, tobacco and books have also contributed considerably to the inflation rate rising at its fastest monthly rate in six years. The only areas that showed a decrease in price were clothing and transport.
The Retail Price Index also rose from 3.8 per cent in March to 4.2 per cent last month affected by the same aspects as the CPI. Commenting on the inflation data, chief economist at New Star, Simon Ward, said: “The details show few redeeming features. Eight of the 11 main categories contributed to the increase in the annual headline rate.
“The only significant negative contributions were from clothing/footwear and transport – the latter mainly reflecting an erratic fall in air fares. New Star’s previous forecast was that inflation would reach the 3.1 per cent letter writing level in July, peaking at 3.5 per cent in September and remaining above 3 per cent until February 2009.
“This was at the top end of economists’ expectations but now looks plausible if retail energy prices are hiked by a further 20 per cent later this year, as widely expected.” He added, offering a gloomy forecast.
Meanwhile, Fool.co.uk has warned that the CPI may not be a true reflection of the rate of inflation for most people. Fool.co.uk has carried out its own Inflation Index and has found that “the pound in our pockets is shrinking twice as quickly – at 8 per cent a year.”
Head of Personal Finance at Fool.co.uk, David Kuo said: “The erosion of the amount of money we save each year strongly suggests the true rate of inflation is gradually crippling household budgets.
“The gap between what we earn and what we spend means we have less money to put away. But as the hole turns into a chasm, we are required to patch up the deficit with money previously salted away. However, a point is reached when the gulf can’t be bridged.”
Alliance Trust has highlighted the fact that there is a deficit between the CPI and the real rate of inflation for different age groups. It argues that the rate of inflation for those over 75 is actually 4.1 per cent, more than one per cent higher than the actual rate according to the Government.
Shona Dobbie, head of Alliance Trust Research Centre, said: “Our study highlights the extent to which inflationary pressures are hitting the elderly hardest. Once again we have found that the over 75s are the most exposed to the negative impact of high food and energy costs. This affects the elderly in particular, as these households spend a higher proportion of their budgets on basic food items.”
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