Worrying time as inflation creeps up
Apr 2 2008 by Andrew Hebden, The Journal
AS IF he didn’t have enough to worry about just now, Bank of England governor Mervyn King will have taken little comfort from the latest survey from the Chartered Institute of Purchasing and Supply (CIPS) published yesterday, which showed that manufacturer product prices rose at their fastest rate for nine years last month.
Being crippled by the ‘credit crunch’ is one thing. After all, it’s a new phenomenon which we can easily blame on greedy City traders and the actions of unscrupulous mortgage lenders on the other side of the pond.
But inflation? Surely there’s no excuse for that ghost of economics past to lurch back on to the agenda. And wasn’t the governor supposed to be keeping an eye on that?
Mr King was, of course, forced to pen one of his “letters of explanation” to the chancellor about a year ago when CPI inflation hit 3.1%, well above the Government’s 2% target.
That seemed like a blip, though, and inflation did fall again for the remainder of the year before creeping up again in the first two months of 2008.
The CPI was up to 2.5% in the year to February and the Retail Price Index, excluding mortgage-interest payments measure, is starker still, rising to 3.7%.
On the ground – with food and fuel bills rising – the perception is generally that prices have actually gone up by even more.
Equally, manufacturers in our region will not have been surprised to see in yesterday’s stats from the CIPS that the cost of oil by-products, such as fuel and plastics, is really hitting companies hard now, last month reaching the highest rate since records began in 1999.
These pressures are a threat to the generally upbeat mood within a sector that has, as we reported last week, adapted well to the challenge of global competition and built itself a stable future focused on building specialist products for niche markets, often in other parts of the world.
The big fear now is that the rising cost of goods in the high street fuels higher wage demands as workers seek to ensure the value of their pay packet rises to cover the growing cost of living.
These are all worrying trends against the backdrop of unprecedented uncertainty in the banking sector.
Mr King and his colleagues on the Monetary Policy Committee have some tricky choices to make when they meet to debate what to do with interest rates next week.
