Price Rise Numbers Hit Talk of Rate Cut for Six; ECONOMICS

The Birmingham Post (England), January 16, 2008 | Go to article overview

Price Rise Numbers Hit Talk of Rate Cut for Six; ECONOMICS


Byline: By Nevill Boyd Maunsell

Prospects of an interest rate cut from the Bank of England last month were overshadowed yesterday by official numbers showing that prices rose by 0.57 per cent between November and December, the biggest increase for any single month for a year.

Because December 2006 was also a bad month for inflation, this left the official measure of year-on-year inflation unchanged for a third month at 2.1 per cent, only marginally above the Bank's two per cent inflation target.

Few economists, though, found this reassuring, coming 24 hours after news of the fastest jump in factory gate prices for 16 years. Yesterday, too, EDF joined the utility companies more than reversing last summer's gas and electricity price cuts - which were still helping to hold down inflation in December.

Katie Teasdale, policy adviser at Birmingham Chamber of Commerce and Industry, noted growing concern about inflation among the Chamber's members.

"There may be increases in consumer prices index inflation in future months and this is highly concerning," she warned. But retailers may have helped contain inflation last month by cutting their margins to combat slow demand over Christmas.

"This may support the case for another cut in interest rates in February, particularly in the context of poor reports from retailers in recent weeks.

"However, it seems likely that in the context of the falling rate of sterling against the euro and increasing energy prices, inflationary concerns will be more prominent and may slow the process of lowering interest rates."

At the British Chambers of Commerce, though, David Kern, economic adviser, insisted that the Bank should not be deterred from a quarter-point cut next month - particularly since inflation measured by the familiar retail prices index, used by many pay bargainers, eased back to four per cent last month from 4. …

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