Slumpflation? UK inflation jumps to 3.5%

A bump in the night or a worrying sign that higher inflation will impose deal cuts on the real incomes of people taking pay freezes or the millions of savers being offered derisory interest rates on their deposit accounts? Consumer price inflation jumped to an annual rate of 3.5% last month prompting the Governor of the Bank of England to unlock the quill pen and write a letter of explanation to the government.

The reasons behind the latest surge in inflation look clear cut

1/ The lagged effects of the fall in sterling on import prices 2/ Much higher oil and gas prices and rising import prices for metals and other raw materials 3/ The effects of the reversal of the temporary cut in VAT (nb VAT is likely to rise to 20% by year end) 4/ Less discounting in the January 2010 sales compared to the same time last year when the UK retail sector looked close to melt-down!

And we can always blame the snow ........!!!!!

5/ Snow last month raised the price of certain seasonal vegetable prices, with cauliflowers rising by the highest amount since at least 1996 and the cost of carrots doubling

Snow as the cause of a spike in inflation .... do you get my drift?

Expect inflation to come down in the months ahead - the pricing power of retailers and manufacturers remains very weak and there is probably a substantial margin of spare capacity in the economy following the 5% decline in real output last year.

Britain is no longer a high inflation country despite the gloomy predictions of those concerned about the size of quantitative easing.

Economist: Storm before the calm Stephanie Flanders considers the latest inflation figures (BBC news)