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.

British Gas, the UK’s largest energy supplier has increased the price of their gas and electricity by 15%. This follows on from NPower and EDF who also increased the cost of their energy services in recent days.

This will probable increase the worry of the UK consumer that the government’s measure of inflation (CPI) is no longer representative of the actual level of price inflation being experienced.

Also of note, as of the announcement, British Gas’ Domestic website has been down for some routine maintenance work. The temporary holding page provides emergency contact numbers.

EDF Energy (British subsidiary of Électricité de France) has announced that it will be increased the price of gas and electricity to it’s 5.5 million UK customers from Friday (18 Jan).

• The Electricity Price will increase by 7.9%
• The Gas Price will increase by 12.9%

According to the BBC, EDF are citing the “soaring cost” of wholesale energy for the increase in prices.This comes on a day when many will probably be wondering how the ONS has calculated that UK inflation is still only 2.1%. (0.1% above target) Well, obviously this increase hasn’t been factored in yet and the NPower increase of last week is also yet to filter through.

There is also an aberration caused by the rather complex method with which CPI is calculated. Rest assured the credibility of the CPI figure should be restored soon as it rises to reflect the very real, very large inflationary pressures being experienced by the UK economy.

On the upside, EDF is moving ahead with it’s plans for the UK’s new generation of Nuclear power plants.

Bang goes the government’s wage inflation target.

UK workers unions UNISON, GMB and TGWU have agreed to demand a 6% pay deal for council workers that they represent. All in all, the three unions represent about 3 million workers in all disciplines although I don’t know how many of those are council workers.

The unions say the pay deal is neccesary to help the lowest paid workers catch up with the rest of the public sector although they concede that for many, even 6% would not bring all into line with the union’s target minimum ‘living wage’ of £6.75/hr

The government, however, has been trying to suppress public-sector pay increases to below 2% in order to control inflation. Nurses and Police officers have been handed out below-inflation pay rises in recent months.

Seeing as UNISON is a traditional backer of the incumbent Labour party, it will be interesting to see how Prime Minister Brown and his Chancellor Alistair Darling handle this.