The Treasury suggests that this is nothing to worry about, because rising inflation has been caused by tax increases which will in due course be ironed out of the inflation figures. The inflation rise reflects the cut in mortgage interest tax relief, the hike in fuel duties announced in the March Budget, and council tax increases. These tax increases yield over pounds 2.5bn a year between them, equivalent to raising the cost of the average household budget by around 0.5 per cent.
It is separately reported that the Chancellor is urging employees to show restraint in their pay demands. Presumably the Treasury's next trick will be to suggest that employees do not need to take the household budget increase into account when formulating wage demands - on the grounds that the increase will be statistically ironed out and will never actually have to be paid.
M C FITZPATRICK
Head of Economics