Today inflation on the government’s measure, the EU CPI, fell again, to 1.8%. This is below the Bank of England target and indicates no problem on the infaltionary front.

At the same time the Retail Price Index rose to 4.1%. This is more in line with the inflation people are experiencing, as their mortgage, Council Tax, petrol and utility bills go up. RPIX is also running well above the CPI.

There are some thoughts on this:

1. What a fiddle Gordon Brown’s switch of inflation targets turned out to be. He told us the old 2.5% target on the RPI was the same as 2.0% on the CPI - a gap of 0.5%. The gap today is much larger.

2. Action taken recently to cut inflation in the short term is driving the RPI up, as it involves making mortgages dearer.

3. Whilst the current level of the RPi would argue for caution on the interest rate/inflation front, I think we are near the peak on the RPI. The people setting interest rates need to look ahead. For once I would be grateful if the Bank would stick to the CPI target and see they need to cut rates.

There is plenty of price cutting power out there in the global economy which is likely to reassert itself now fianncial squalls have hit western economies.

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