WITH CPI inflation reaching 3.2 per cent (0.2 per cent down), inflation for June remained 1.2 per cent above the Bank of England target.
RPI inflation (which includes housing costs) was at 5.0 per cent (0.1 per cent down) , while RPIX inflation (with housing costs removed) was also at 5.0 per cent (0.1 per cent down).
The situation of British capitalism therefore remains critical.
As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in May was above the provisional figure for the European Union. The UK rate was 3.4 per cent whereas the EU’s as a whole was provisionally 2.0 per cent.
The government’s target CPI figure is two per cent.
Yesterday’s figures showed no great reduction in the inflation rates, while ahead lies an increase in VAT from 17.5 to 20 per cent, on January 1st 2011, which will make for a five per cent VAT rise in a year, and is certain to lead to a leap in the inflation rate.
However, despite the minor falls in the inflation rate core inflation is rising.
Despite reported alleged falling clothes, food and petrol prices, core inflation rose from 2.9 per cent in May to 3.1 per cent in June, equalling its highest level since records began in 1997, and indicating that the essential inflationary drive remains upwards.
A major factor behind this was the rising cost of services, which accelerated to 3.9 per cent from 3.4 per cent in May.
The Bank of England Monetary Policy Committee remains, in its majority, persuaded that the savage deflationary cuts that the coalition government is making will see to it that inflation returns to its two per cent target in the autumn, and perhaps also in the summer, after the January 1st VAT rise shock.
The issue is how long can the Bank hold out before it has to raise interest rates and deliver another deflationary shock to housing and jobs.
David Kern, the chief economist at the British Chambers of Commerce, is looking at the future of the British capitalist economy from a position described as the ‘balance of probabilities’.
These are said to suggest that inflation will fall in the autumn but climb back up after the 20 per cent VAT rate has its impact in the New Year.
Vicky Redwood, senior UK economist at Capital Economics, thinks that this ‘remains a tense time for the Bank’s Monetary Policy Committee. Nonetheless, the nightmare scenario of a fiscal squeeze accompanied by rising interest rates will be avoided.’
Howard Archer, chief UK and European economist at IHS Global Insight, considers that the ‘rise in core inflation’ indicates that ‘inflation could be stickier than expected over the second half of the year. As such, the data keeps open the possibility that the Bank of England could enact at least a token interest rate hike before the end of the year.’
Yesterday gilts fell and sterling rose as investors sensed more BoE policy makers will be joining rate-rise advocate Andrew Sentance, if underlying inflation does not resume a downward path.
BoE Governor Mervyn King remains convinced inflation will ease back towards its two per cent target over the course of the year once past rises in oil prices and January’s VAT rise fall out of the annual comparison, but recent BoE policy meetings have seen heated debates.
To add a further edge to the British crisis the figures released by the ONS on Monday 12 July showed that GDP in the first quarter of 2010 was 0.2 per cent lower than it was in the first quarter of 2009.
The Office for National Statistics (ONS) continued to state that its annual reworking of the statistics led to a revision of the peak to trough decline in GDP to 6.4 per cent from 6.2 per cent, wiping an additional £2bn off the economy – hardly an example of the UK exporting itself out of the slump and the financial crisis.
The truth of the matter is that British capitalism is beyond saving and the reorganisation of the British economy and society requires a socialist revolution.