Unpleasant news for UK’s monetary authorities this morning: CPI inflation has risen to 5.2 per cent. A sixteen year high.
Consumer prices index (CPI) annual inflation rose to 5.2 per cent in September, up from 4.7 per cent, following further rises in gas and electricity bills. Electricity prices rose to 30.3 per cent year on year, up from 18.0 per cent in August. Gas inflation rose to 49.9 per cent, up from 27.7 per cent in August.
Time for Mervyn to whip out his quill and explain the situation to the Chancellor of the Exchequer. Here’s a couple of choice extracts from the last letter the governor of the Bank of England wrote – barely a month ago – in which he predicts “peak inflation” at around 5 per cent:
The expected peak in inflation later this year is now likely to be significantly higher than anticipated in June: the Committee now expects inflation to peak soon at around 5%. This is mainly because import prices are likely to be stronger than anticipated three months ago, although the recent falls in oil prices will act to moderate the peak in inflation.
Given the way the pound has moved in the past month, however, the outlook may be worsening. Further, if fuel and energy bills do not start coming down – and it doesn’t appear that they will – then the moderating effect of falling oil prices will not be apparant.
Leaving a possible stagflationary scenario.
Which makes calling the death of Thacherism – as some commentators have recently been quick to do – seem potentially rather premature.
Thatcherism may have unleashed the deregulatory powers that led to the current banking boom, but it was the political “answer” – for want of a better word – to the last serious stagflationary climate the UK faced. So as the recession bites, it might yet make a comeback. For better or for worse, it might not yet be time to bin Maggie.