Is “inflation rising” in the UK? So claims the Guardian, after the July inflation update from the ONS:
Sir Mervyn King shrugged off a fresh rise in inflation on Tuesday when he expressed fears about the impact of turbulence in the financial markets and the debt crisis in the eurozone on an already weak UK economy.
Here’s the relevant wiktionary definition of inflation:
- (economics) An increase in the general level of prices or in the cost of living.
If “inflation” is “rising prices”, “rising inflation” must mean an increase in the rate at which prices are rising. But was there even an “increase in the general level of prices” in July? Well, actually, no. In fact, the price level (as measured by the CPI or RPI indices) has been flat since April:
CPI and RPI Index Levels. Source: ONS
As ever, the concentration on the yearly rate of inflation obscures the underlying data. Thanks to the dip in prices in July 2010 relative to June 2010, an unchanged price level in July 2011 can result in an increase in the yearly rate in that month. Is this significant? I’d call it noise.
The Bank of England are predicting a rise in the yearly rate of inflation to 5% before the end of the year – and the price level is going to have to start ticking upwards again to achieve that.
