James Moore: Inflation rises to 1.9%

Outlook Shock horror: Inflation is up to 1.9 per cent. That’s just 0.1 per cent below the Bank of England’s 2 per cent target. Look out, interest rates will be at 10 per cent before you know it!

The problem with the economics news cycle is that it is based around relatively small numbers, and on economists’ forecasts of where those numbers will be when the official data is released.

Any deviation from those forecasts is automatically a big deal, worthy of a flurry of excitable comment, and (at the end of the day) grave looking experts warning of dire consequences when Newsnight can’t think of anything else to report on.

It’s true that the increase to 1.9 per cent caught a lot of people on the hop. But there would have been a similar kerfuffle had it jumped to 1.8 per cent. Even 1.7 per cent would have been deemed worth of note given that the consensus was for 1.6 per cent.

But all is not quite as it seems. The jump, as the Office for National Statistics pointed out, was driven by a number of short term factors that City scribblers failed to factor into their projections.

To take one example, clothes retailers haven’t indulged in the sort of discounting we saw last year because the weather was really quite warm last month. People responded by buying more summer clothes, so there was less incentive for retailers to cut prices. Where they did, as the summer sales got underway, discounts were less pronounced.

This didn’t stop the market from reacting, but that’s what markets do. Sterling rose, bond prices fell, because the herd mentality took over and traders all over the City bet on UK interest rates rising.

Which is what they will do. It’s just that the Bank of England’s Monetary Policy Committee is unlikely to take too much notice of one potentially aberrant set of figures. Unless they signal the start of a trend.

That said, with the economic recovery now established and house prices continuing to cause a worry, acting to cool things down soon, and allow more normal monetary conditions to be introduced, would be no bad thing. Better that rates rise sooner, and more gently, than sharply as a result of a panic if yesterday's data does signal something nasty.