Inflation 'likely to rise further'

Both official measures of UK inflation rose in May. CPI was up to 3.3% from 3% and RPI to 4.3% form 4.2%. Rising food and energy prices could push UK consumer inflation above 4% this year, the governor of the Bank of England has warned. This month's rise meant that he has had to write the dreaded letter to the Chancellor explaining what measures are being taken to bring inflation under control. In it he says "As things stand, inflation is likely to rise sharply in the second half of the year, to above 4%... (but) there are considerable uncertainties, in both directions, around this, and any such projection is particularly sensitive to changes in domestic gas and electricity prices." British households must learn to live with higher prices and without increased wages, Mervyn King warned. (Link to BBC News) (Link to The Guardian article)

UK households have become increasingly aware of inflation over the past year, and expect it to rise over the coming 12 months, new research suggests ... energy, petrol and food price rises have increased inflation awareness. Inflationary expectations have proved to be significant in accelerating the rate of inflation in the past. (Link to BBC News)

The Bank of England’s Monetary Policy Committee voted eight against one to hold interest rates at 5 per cent this month, but some members were ready to consider an immediate rate rise to contain inflation, minutes of the meeting showed on Wednesday. “If there were a serious threat to medium term inflation expectations then a pre-emptive rise in rates would be appropriate. Delay would only increase the eventual costs of bringing inflation back to target,” the minutes said.