The Monetary Policy Committee's Approach Is Appropriate; HM TREASURY
Thank you for your letter of 16 April regarding today's inflation figures.
In your letter you state that: "the news seems unlikely to alter the broad picture painted in the February Report. As the substantial increases in household gas and electricity prices that occurred a year ago drop out of the annual comparison, and the falls in those prices which have already been announced take effect, CPI inflation is likely to fall back within a matter of months. At the time of the February Report, the Committee judged that, assuming Bank Rate followed the market yield curve, the central outlook was for inflation to fall to a little below the target by the end of this year, before settling at around the target during the following year."
Inflationary pressures have been a feature of the major industrial economies in recent times.
I am grateful for your explanation of the recent increases in inflation in the UK.
I note that part of the rise reflects unexpectedly sharp increase in energy prices, including a 25 per cent increase in sterling oil prices since February, and a further part reflects the impact of weather conditions on food supply as well as the other factors you identify.
I welcome your confirmation that "the Committee will continue to look through the short-term volatility in inflation over the next year or so resulting from fluctuations in domestic energy prices and set Bank Rate to keep inflation on track to meet the two per cent target in the medium term". …