Price Rises Everywhere – What Is This Doing To Inflation?

I have noticed that petrol prices are going up almost every day at our local supermarket. Many other prices are rising fast too.

Rising petrol prices are being joined by increases in rail fares, mobile phone charges, food, the general VAT increase of course, higher electricity and gas costs.

The list of price hikes just keeps on growing.

It won’t be long before we all start to feel the pinch and cut back on a few of the non-essentials, but we still need petrol for our cars, to go to work on the train and to heat our houses.

So many of these price rises cannot be avoided, however careful we are.

And that is the problem, because all these price increases here and there will push up the rate of inflation. At 3.3% inflation is already more than 50% above the threshold agreed between the government and the Bank of England.

There is only one instrument that the BoE can use to slow down escalating inflation and that is interest rates.

It won’t be long before the lone voice of Andrew Sentance, who has argued for some time that rates should rise, is joined by others on the Monetary Policy Committee which meets every month to set interest rates. They will be announcing their first decision of the year tomorrow.

I expect that they will decide to keep base rates on hold at 0.5% again, however it won’t be many months before we see a rise to 0.75% and beyond. That is when our wallets and purses will really cry out in anguish.

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