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Tuesday, February 15, 2011

Inflation Up

Depending on whether you follow the Consumer Price Index (CPI) or Retail Price Index (RPI) as a measure of inflation, the ONS reports that inflation in January was 4% and 5.1% respectively.

The Bank of England's target for CPI is 2%, as such there is increased pressure from some quarters on the Bank to raise interest rates in order to tackle the inflationary bubble that appears to be forming in the economy.

However, the reality is that if the Bank ups interest rates the economy (which has yet to be hit by the austerity budget) will be sent into free fall.

The Bank should hold its nerve, and wait for the effects of the austerity budget to kick in.

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