Connected Research

Union policy research in the 21st century

Rise in inflation and other economy stuff

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The Office for National Statistics has this morning published the inflation figures for October, which show that inflation is rising – on all measures.

The Retail Price Index rose from -1.4% in September to -0.8%, the highest month-on-month increase since 1990: although we should bear in mind that, on this measure, prices are still lower than they were one year ago. Over the previous three months, RPI had been static at -1.3% to -1.4%. The volume of the September-October increase is accounted for by rises in prices in motoring, houses, food and fares and other travel over the month; the lower general prices than one year ago is accounted for largely by drops in housing and fuel costs.

Meanwhile, the Consumer Price Index rose by 1.5%.

The rise in inflation was expected and is expected to be volatile over the next couple of months, not least as VAT rises again in January after last year’s temporary cut, and as the Bank of England’s November report had recently explained. Rising inflation will provide an important backdrop to whether the Bank will need to put more money into the economy via its quantitative easing programme, currently standing at £200bn, with rising inflation making this less likely.

Meanwhile, a speech last night by Andrew Sentance, a external member of the Bank’s Monetary Policy Committee, highlighted the uncertainty with which the Bank views the economy: a combination of four factors (signs of growth across the global economy, including with major trading partners; positive news from a range of business surveys; improvements in consumer spending and confidence; and an apparent levelling-off of unemployment) indicates that the recession may be ending but, at the same time, recovery is likely to be fragile, since a synchronised recovery is likely to lead to upwards pressure on world energy and commodity prices, and and the need for ‘domestic rebalancing’.

These are controversial views – especially the latter, since Sentance here is referring to a rebalancing between public and private sectors aimed at a reduction of the UK public sector deficit. As the TUC has continually warned, as recently as yesterday at its ‘Beyond Crisis’ conference in the speech of Brendan Barber, General Secretary:

Public spending is the only motor of growth currently available to us. Swingeing cuts would increase the risk of Britain suffering a Japanese-style lost decade, would mean the unwelcome prospect of a jobless recovery, and would lead to the emergence of a so-called Zombie economy,

setting the country back for years, if not for years. A far better re-balancing of an economy that has become over-dependent on financial services and London and the south-east would aim towards a revitalisation of manufacturing, regeneration of the regions and a renewal of infrastructure towards a greener, fairer and more equal society. This remains the correct path to an economic renewal which doesn’t repeat the money-go-round, cash machine policy mistakes of yesterday but which creates the essential pre-conditions for sustainable growth.

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Written by Calvin

17/11/2009 at 1:38 pm

Posted in Economic trends

Tagged with ,

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