Inflation rose to 3.1 per cent in August, and the average Brit could still be forgiven for rolling their eyes and saying: \u201cTell us something we don\u2019t know.\u201d<\/p>\n
Inevitably the villain of the piece was energy, and the continuing closure of that narrow waterway in the Persian Gulf we are by now all too familiar with. That would be the Strait of Hormuz. <\/p>\n
Whether it\u2019s diesel, heating oil, petrol at the pumps, or transport, the price of which is heavily influenced by the price of fuel, it doesn\u2019t much matter. They combined to add heat to the prices we pay and to the severe headache facing Andy Burnham and his government<\/a>. Some put upon junior civil servant was doubtless dispatched to the nearest Boots to pick up a job lot of paracetamol.<\/p>\n But wait just a minute. I have some good news for you, because it isn\u2019t quite as bad as it looks. At least not yet. Delve into the Office For National Statistics missive and you will find that core inflation, which excludes the most volatile categories including energy, food, booze and tobacco, wasn\u2019t so nasty.<\/p>\n The measure is designed to show the \u201cunderlying\u201d level of inflation in the economy, since food and energy prices can rocket around like crazy due to a drought or a foreign war. While those are still important factors to consider, they often muddy the picture of how an economy is actually doing. By stripping out the choppy bits, we get a better idea. As a measure of danger to an economy, it\u2019s a bit like ignoring the size of waves around a boat and instead focusing on its direction and speed. <\/p>\n The Bank of England\u2019s rate setting Monetary Policy Committee (MPC) can\u2019t do much about energy prices because it can\u2019t do anything about the causes of the surge: Donald Trump, the Iranians, and\/or the Houthis in Yemen<\/a>. It has even less power, if that\u2019s possible, to influence El Ni\u00f1o, and the impact the latter might have on food prices down the line<\/a>. <\/p>\n It thus makes sense to have a measure that gauges what\u2019s happening with those things it can use monetary policy to influence. That, more or less, is what core inflation is comprised of and it has held steady for the last four months at 2.6 per cent. <\/p>\n That is still too high for comfort, certainly for the more hawkish members of the MPC, given the 2 per cent target they are working towards. But its relative stability amid the current chaos is nonetheless comforting. It suggests the UK is on a sensible course. It may also be enough to stave off an interest rate rise tomorrow, something the economy can ill afford despite the resilience it has shown. <\/p>\n Service price inflation, doggedly high for an extended period of time, had hit 3.7 per cent in May but has since come back to 3.4 per cent, where it has stayed. Again, too high, but at least stable. <\/p>\n Nor has there been any sign of the wage-price spiral that givens the entire membership of the MPC sleepless nights. To the contrary. The latest data from the ONS showed average wage growth falling to 3.9 per cent from 4.2 per cent<\/a>. Private sector pay is now under water when compared to headline inflation at 2.9 per cent. <\/p>\n