David Prosser: Inflation threatens the recovery, too
Wednesday 18 August 2010
Outlook Yesterday's inflation figures are a reminder that it isn't just Mr Osborne's deficit reduction programme – lower spending and higher taxes – that threatens the recovery. Stubbornly high inflation – Bank of England Governor Mervyn King now says it will be too high for a year longer than he reckoned back in May – will mean a rise in interest rates sooner or later. And in the meantime, the retail price index, at 4.8 per cent, shows the cost of living is rising roughly four times as quickly as average salaries.
Current levels of inflation, in other words, threaten to further exacerbate the squeeze on disposable incomes. With consumer spending such a crucial part of the economy, that's a grisly prospect.
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