Inflation

Although Mark Carney has earned a reputation for doom-mongering over Brexit, today's Bank of England press conference wasn't all doom and gloom. While the bank voted – at six votes to two – to keep interest rates at 0.25pc (see the leader in this week's issue of The Spectator for why this isn't such a great idea), its Inflation Report did bear better-than-expected news. On inflation, Carney said it was expected to peak at 3pc in October from its current rate of 2.6pc.

There's more doom and gloom for households today as new figures reveal the first decline in real earnings since September 2014. According to the Office for National Statistics (ONS), earnings growth slowed in the three months to March, at 2.1 per cent, compared to previous data which showed wages, excluding bonuses, grew at 2.2 per cent. This compares to inflation which jumped to 2.7 per cent in April. Meanwhile, the unemployment rate dropped to 4.6 per cent in the three months to March, and is now at its lowest rate since 1975. It was previously 4.7 per cent. It means that 1.54 million people are currently unemployed.

There's bad news for households this morning following the news that inflation has soared to its highest level since September 2013. According to the Office for National Statistics (ONS), inflation is now at 2.7 per cent, up from 2.3 per cent in March. This is some way above the Bank of England's stated 2 per cent goal. A number of factors contributed to the rise, but the main driver was higher air fares. This was largely because the timing of Easter pushed up the price of flights. In addition, tax changes in the Budget added to inflation as did rising costs of energy and clothing. Meanwhile, the retail price index (RPI) measure of inflation, which includes council tax and mortgage interest payments, jumped from 3.1 per cent to 3.5 per cent over the same period.

The economists were right. For months now, they have been warning that the Brexit vote and the subsequent fall in the pound would drive up prices. Today's figures from the Office for National Statistics confirm that consumer prices are rising at their fastest rate for more than three years. According to the ONS, the Consumer Prices Index (CPI) jumped to 2.3 per cent in February, up from 1.8 per cent in January and above the Bank of England's 2 per cent target. Food prices recorded their first annual increase for more than two-and-a-half years, reaching 0.3 per cent higher in February than a year earlier. With the prospect of an interest rate rise now on the cards, households are facing the first real squeeze in their incomes for some time.

From supermarkets to superyacht builders, sales figures are remarkably buoyant: consumer debt may be rising too, but no one can say the New Year economic mood is markedly downbeat. This column feels obliged to find something on the horizon to worry about, however, and my telescope is focused on inflation. If deflation was a real threat to developed economies in recent years, the pendulum is now swinging the other way. UK inflation is expected to hit 3 per cent by late 2017, what with higher import costs generally thanks to the weak pound, fuel-price rises as a result of Opec’s effort to restrict oil production, the pass-through to consumers of higher business rates in London and the south-east, and higher rail fares for no good reason at all.

Amid the cacophony of moaning and groaning accompanying this week's nationwide return to work was an eye-catching headline from satirical site The Daily Mash: 'So we meet again, Southern tells commuters'. As someone who used to brave the Northern line on a daily basis, I can imagine the impending sense of doom felt by thousands of Southern customers as January 3 edged ever closer. Months of disruption thanks to staff shortages, industrial action and, if social media is to be believed, complete ineptitude on the part of the train operator, is enough to give anyone a New Year hangover. And now, what fresh hell is this? More strikes on the horizon, more cancelled services and more people crying on the inside as they wait for their train into work.

The currency has been devalued by more than 30 per cent. Interest rates have been pushed all the way up to 20 per cent. The IMF is standing by with an emergency package, and capital controls and dollar rationing have been maintained. It has been a heck of a morning for the pound – although, fortunately enough for most us, the Egyptian rather than British one. Over here, it has all been rather quieter. The Bank of England, as most people expected, has stuck with its decision over the summer to take rates all the way down to the 0.25 per cent. It now looks inevitable that it will hold them there – potentially for as long as the seven years at which they were left at 0.5 per cent. And yet that is surely a mistake.

So, inflation has gone up. Unexpectedly, it rose to a 22-month high of 1 per cent this week, with the full force of a weak pound and other rising prices fuelling the leap. This means more bad news for savers who are already concerned about the eroding power of inflation on their cash. The rise caused a bit of a shock, as many economists had predicted a much smaller increase to 0.8 per cent, up from 0.6 per cent the month before. Now adjusted analysis shows we could see inflation exceeding the 2 per cent target as soon as next year. What does this all mean for savers? Well, there is currently very little choice in deals that pay 1 per cent or more, and it’s only going to get worse.

It takes quite a determined Cassandra to see the rise in Consumer Prices Index (CPI) from 0.6 per cent in August to one per cent in September as some kind of crisis, not that that will stop the holdouts of the Remain campaign from trying to do so. When CPI fell below one per cent at the end of 2014, you might remember, there were dark warnings about the threat of deflation – with the horrors that would imply for borrowers, who would see the real value of their debts increase. Now, some are trying to present a rise to one per cent as bad news, with former Monetary Policy Committee member Andrew Sentance, for example, calling it the ‘tip of an inflationary iceberg’. Steady on. Sure, inflation is likely to increase over the next few months.

When I wrote my last Daily Telegraph column critical of Btecs, an exam now taken by about a quarter of English university entrants, a friend of mine in the world of university admissions told me to wait for the reaction of Pearson Plc, which owns Btec. While A-levels and GCSEs are rigorously examined and discussed, Pearson get away with releasing very little data about Btec and plough a lot of money into marketing their exam. And they don't very much like it being criticised. Rod Bristow, the president of Pearson UK, has written to today’s Daily Telegraph suggesting that I was wrong to suggest that Btecs have gone through serious inflation – and, ergo, devaluation.

Annual CPI inflation rose by more than forecasters expected to reach 0.5 per cent in March, up from 0.3 per cent in February, figures released today show. The rise was due to a jump in the cost of air fares, which were affected by the timing of Easter. Growth in fuel prices slowed and consumers benefitted supermarket price wars that saw the cost of food fall by 0.6 per cent between February and March. Core inflation, which strips out energy, alcohol, tobacco and food, rose to 1.5 per cent from 1.3 per cent – further evidence the UK's period of low inflation may, slowly, be coming to an end.

The unemployment rate fell to 5.1 per cent in the three months to November, putting it at the lowest level since 2006 – and back to its average over the six years before the crisis. Back to what the Bank of England regards as the "equilibrium" rate. [datawrapper chart="http://static.spectator.co.uk/DUFV6/index.html"] The other side of the coin is that pay growth is down too. Excluding bonuses it's fallen to a sluggish 1.9 per cent year-on-year, around half its pre-crisis rate. Workers’ spending power is still growing – but that's driven by low inflation. [datawrapper chart="http://static.spectator.co.uk/u0fNr/index.