Today's inflation figures are very bad news, with inflation running over target for nearly two years now.
The main justification for the Bank of England's money printing policies, announced earlier this month, was that threats to economic growth had increased. However, growth is not sluggish because interest rates are too high. Growth is slowing because of the threats from the eurozone, huge increases in tax and regulation over more than a decade and because of the continued fallout from the credit crunch. The Bank of England's duty is to ensure price stability and it is failing in that duty.
Commenting on the figures, Professor Philip Booth, Editorial Director at the Institute of Economic Affairs, said:
"The increase in inflation this month is particularly concerning. This figure will be used to uprate benefits. The increases in benefits will put more pressure on government borrowing and force more spending cuts or tax increases to compensate.
"Whilst those in work are suffering severe cuts in living standards because of the rise in VAT – a major contributor to today's inflation rate – those on benefits are compensated for the VAT rise, further eroding work incentives for the low paid."