Halt in in­fla­tion does not mean base rate rise was wrong

Com­ment Martin Flana­gan

The Scotsman - - Business -

In­fla­tion hold­ing steady last month at 3 per cent boosts hopes that price rises have peaked. That is some re­lief for con­sumers, most of whose earn­ings are see­ing no growth to speak of and many of whom on vari­able mort­gages will prob­a­bly be a lit­tle worse off af­ter the re­cent rise in base rates. It stops comfortably short of a cause for cel­e­bra­tion be­cause in­fla­tion is still run­ning at its high­est since April 2012.

But you have to pull out of a dive first be­fore you can hope to pros­per. And the lat­est data is con­sis­tent with much eco­nomic opinion since last sum­mer that the tailend of 2017 would see the in­fla­tion­ary peak.

In­fla­tion com­ing in as flat in Oc­to­ber is un­likely to cause re­flec­tion in the Bank of England mone­tary pol­icy com­mit­tee that they were per­haps pre­ma­ture in push­ing through the first in­ter­est rate rise in ten years a fort­night ago. Talk of red-faces at Thread­nee­dle Street is sim­plis­tic.

Mone­tary tight­en­ing is as much art as sci­ence and there is noth­ing to sug­gest cur­rently that the Bank got it wrong.

The rate rise was hardly dra­matic, a mere quar­ter-point, and was jus­ti­fied given the ex­tended run of in­fla­tion well above the Boe’s mid-term tar­get of 2 per cent and con­tract­ing slack in the econ­omy.

And it is not only savers who should be glad at the rise. We all ben­e­fit from rates be­ing at slightly higher lev­els be­cause it shows the UK econ­omy and fi­nan­cial sys­tem is out of the in­ten­sive care ward.

It is too early to call, but static in­fla­tion last month might also sug­gest that the ab­so­lute worst of the jump in the cost of im­ported ma­te­ri­als and goods since the Brexit vote-linked slump in ster­ling is over.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.