Rising prices and falling real incomes

The CPI headline inflation rate has fallen to 4.8%. This BBC chart shows recent changes in the rate of increase of the general price levels using CPI and RPI indicators.

CPI annual inflation stands at 4.8 per cent in November 2011, down from 5.0 per cent in October. The largest downward pressures came from food, petrol, clothing and furniture, household equipment & maintenance. Partially offsetting these were upward pressures from increases in the cost of domestic heating and off sales of alcohol. Fuller details are on the ONS website.

Inflation erodes purchasing power of households, and savings; yet although prices have been rising, there is little evidence of surges in wage rates in UK regions, as unions press hard for wage increases to offset the rising cost of living. In real terms, households across the UK, have had falling incomes, as the rate of wage inflation remains below the level of price inflation. The North West appears to have the biggest decline in incomes.

The depreciation of sterling, rising commodity prices and strong demand in China have continued to contribute to cost pressures in the UK economy. Energy prices have risen almost 20% recently, some of the increase is due to present government policy to support greener electricity generation., a good example of conflicting macro policy goals.

The BBC video report claims that The Bank of England expects CPI to fall in the near future, citing recent falls in the price of Brent Oil Futures tp $110.However, Reuters reports that Spencer Dale the B of E Chief Economist is unsure about the case for additional Quantitative Easing measures if the rate of UK inflation remains above the target level.

 

 

 

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