Higher and higher?

Consumer price inflation in November rose at its highest rate since May.

The index (CPI) in 2009 was 1.9 % higher than in the same month in 2008. There had been an expectation of about 1.8%, so you could argue that the experts mostly got it right in advance. In 2008 there had been falls in the cost of transport, but this year a rise in November.

There will be a further spur to inflation in January when the rate of VAT is raised back to 17.5%. The Bank of England is prepared for a rate of 3.0 on the CPI, but feels that it could fall back because of the low level of economic activity and high unemployment.

(The more familiar and more inclusive RPI, - Retail Price Index, rose by 0.3% compared with a year earlier, also slightly more than expected.)

Is this of concern? The answer has to be be "No, not as things stand." There could however be other shocks. If sterling depreciates against other currencies, perhaps because of a loss of confidence in sterling by international creditors, then import prices would rise and add to any pressures. Alternatively, if growth is at the level the chancellor claims to expect, then bottle necks and resource shortages could drive up prices, and consumers willing to pay them because of the new-found confidence in the economy, Further tax rises, on income or purchases, could also feed through into higher wages and prices.

We would not want inflation to take off, because that could lead to a rise in interest rates, as the Bank of England tries to moderate the inflation. This could nip any further growth in the bud. This is a point that Osborne has been making recently.