News out this morning is that the CPI inflation rate for the Uk has hit 3.4% and RPI is at 4.4%. In normal times we would have interest rates at 5%+ to control this inflation.
But these are not normal times, the economy likes wrecked after the worst recession of our lifetimes. The Bank of England has predicted that we can expect rising inflation and then a sharp fall. Above is its latest published inflation report, published in February 2010.
The devil is in the detail , if you look at the Q1 2010 line above you can see that inflation is expected to have peaked at between 3% and 4%, but their central analysis is for a peak of under where the inflation rate is now.
So on the one hand it may be thought that the Bank is happy and we are still on course on their methodlogies, but alot rides on the April figures. For a start, Oil prices have been very high and pushing up core inflation. Wage inflation we won't know about for a couple of months. The third big piece of the puzzle at the moment is the Pound Sterling; which is sickly and the prospect of a hung parliament is making is worse.
Thus the pressures on inflation are mainly upward at the moment. not downward.
The Bank fo England is clearly expecting some large deflationary pressures to come to bear - perhaps they expected a Conservative victory in the General Election?
The result is that we are on a knife edge in terms of monetary policy - one more month of higher prices and then interest rates will have to start ticking up. Once this process starts there will be rises every month of every other month - deadly in short-order to the over-borrowed companies and people of the UK.