James Moore: Optimism tempting as inflation picture looks rosier, but let's not get carried away

Outlook Inflation has slipped again: Hooray! Crank up the presses, let's start printing money once more. Yes, monetary policy makers were smiling yesterday thanks to the Office for National Statistics releasing figures showing that the CPI measure of inflation, for once, did what everyone expected it to by easing to 2.5 per cent in August from 2.6 per cent in July.

RPI inflation, which includes housing costs, also fell, dropping to 2.9 per cent from 3.2 per cent. Finally, it seems, there should be some relief for household budgets where the pips are well and truly squeaking following squeeze after squeeze after squeeze. Good news, that, given Christmas is on the way, at least if you believe M&S, which is already flogging advent calendars as Marc Bolland, its chief executive, tries desperately to justify the £10m Christmas present he received just for getting his feet under his desk.

If you accept what the Bank of England is saying, it's just going to get better too. Forecasters at the Old Lady of Threadneedle Street are expecting CPI to ease its way down to the Bank's 2 per cent target level in the new year, and perhaps sooner. There's not a lot of demand in the economy to push prices higher, shops are having to slash their margins to the bone just to get people through the door and while wage rises might be inching their way above price rises, the state of the labour market means upward pressure is strictly limited. People are willing to accept what they're given because they're usually happy just to be in a job.

And there's more: the year-on-year effect of last year's utility price rises is also set to fall out of the September inflation figures. This means that in the absence of any really nasty surprises, the headline rate will fall again when the next set of figures is released.

The trouble with this rosy view of the outlook for inflation is that global pressures are pushing hard in the wrong direction. Food prices are expected to rise sharply in the coming months as the impact of a bad harvest Stateside filters through into the figures.

The oil price is on the march (it has risen by nearly a third in the last four months), which increases costs for just about everyone, and the European firms which have been handed control of the UK's utilities are rumbling about hiking prices again.

Of course, there's not a lot that the Bank of England can do about any of that, and its policymakers know this. With the economy still on the critical list, any change in an upward direction to interest rates would be suicidal.

All the same, a number of economists are looking at some of the Bank's more optimistic forecasts with a rather jaundiced eye.

But if those forecasts are motivated by a excess sunny optimism, does it really matter all that much?

Given the limited room for manoeuvre that the Bank's interest-rate setting Monetary Policy Committee has, the result will be the same regardless of whether its forecasts are optimistic or pessimistic.

However, the optimist does have a better time of it so perhaps we shouldn't be too quick to find fault.

Start your day with The Independent, sign up for daily news emails
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'