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Inflation Stays High

Written By On 16/04/2013

March Inflation figures from the Office for National Statistics were released just days before the minutes from April's Monetary Policy Committee are due to be published tomorrow. It records the Consumer Prices Index's rate remaining firm at 2.8% which is still at it's highest level for nearly one year.

The Bank of England had already commented that their initial expectation of a 2% inflation target will not be met for a minimum of three years. Now they are predicting it to be above 3% by the end of 2013. However, they still predict inflation to hit their original 2% target within three years.

The ONS also revealed the Retail Prices Index showing an inflation increase of 3.3% for March, a rise of 0.1% on the previous month.

There is a belief that lenders will be forced into increasing the rates of their loans to cover the losses caused by the rise. This in turn may prompt further inflationary increase.

In March, the MPC was split six votes to three against launching it's asset purchase programme again and held quantitative easing at £375 billion. The policy makers decided to err on the side of caution because of the gloomy inflation forecast.

Philip Shaw, chief economist at Investec said,

This is about as close to consensus as you're likely to get. Our view remains that CPI will move above 3% in the coming months. The big question is whether the MPC will look through this and become more aggressive on quantitative easing. We suspect it will.

David Tinsley, from BNP Paribas, said that these figures were as expected and feels that it will be a few years at least before we reach the initial 2% figure.

Some of the commodities that inflated the most were car insurance, books and new technology cameras, whilst petrol and diesel were less. However, economists are expecting energy costs, fuel bills and food prices to increase the rate further in the near future.