The UK CPI inflation figure has jumped from 2.5% to 3%.

The CPI figure is the official control target for the Bank of England which is required to maintain CPI at or near 2% using it’s primary weapon; interest rates. The BoE, however have been cutting interest rates in recent months causing Sterling to dive against the Euro.

The CPI figure is consistent of a basket of goods which is arbitrarily altered in an apparent attempt to engineer a low figure making it somewhat useless for continuous comparison. The RPI figure which is arguably more realistic yet still flawed jumped from 3.8% to 4.2%. As someone who actually has to buy food, oil, and necessary commodities (rather than ipods) in the UK, I would suggest that the real rate of inflation is somewhere between 6% and 10% and I’ve no shortage of people these days who will agree with me.

In this BBC article, some ’some analysts’ say that the high rate of inflation is caused by the high prices of oil and food and that raising interest rates would do little to control this inflation.

Ok, ’some analysts’, lets us say we cut interest rates; what then happens to the pound? That’s right, it falls against other currencies as the carry-trade legs it. Oh, look, the cost of oil and food of which we are net importers and must pay for in foreign currencies just increased. Congratulations, ’some analysts’ you just fueled inflation.

The Halifax has posted a report of 2.5% house price falls month on month, the sharpest drop since the early 90s. The year on year figure is still positive at 1.1%

Martin Ellis, chief economist for Halifax said:

Overall, we expect there to be a modest fall in UK house prices this year. Any declines, however, should
be viewed in the context of the significant price rises over recent years. The average UK price has risen
by £120,860 during the past decade from £70,696 to £191,556; an increase of 171%.

Predictably there were some calls for the Bank of England to reduce interest rates but obviously, it is not the BoE’s remit to look after asset prices, rather to target inflation. Furthermore, the Bank of England’s previous interest rate cuts have not been passed on to mortgage borrowers, the private banks have instead been increasing their rates to customers.

Any such downward move in interest rates in the face of massive inflation would destroy the pound’s value against the Euro just in time for British people’s summer holidays.

The Abbey National bank deleted it’s 100% mortgage product today, the last such 100% product available in the UK.