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Inflation, Energy Prices on the Rise: Can Cameron’s Government Respond?

Posted on the 19 October 2011 by Periscope @periscopepost

Inflation, energy prices on the rise: Can Cameron’s government respond?

Elderly people will suffer most from inflation and energy price hikes. Photo credit: Brian Auer

Figures released today show that the rate of Consumer Price Index (CPI) index has risen from 4.5 percent in April to 5.2 percent this September, the highest since the height of the economic recession in 2008, the Press Association reported. The UK now has the second-highest rate of inflation in the EU after Estonia. The rate is now being used to calculate the rate of inflation by the government for the purposes of benefits and tax credits rather than the more generous rate of retail prices index (RPI) inflation. RPI inflation shot up to 5.6 per cent in September, its highest level since 1991.

Experts predicted that inflation in the UK was going to rise due to the depreciation of the sterling, rising energy prices and the rising VAT rate. Energy prices rose by more than 7.5 per cent between August and September, and a recent poll by market research company Populus showed that gas and energy prices and petrol prices were, in that order, the issues that voters were most concerned about.

David Cameron and Energy Secretary Chris Huhne penned this article for money saving blog that they had met with the “big six” energy companies and had pressed them to make concessions to help people pay their energy bills. Rachel Reeves, Labour’s new shadow chief secretary to the treasury was unconvinced: “It’s now clear we have the worst of all worlds – high inflation, rising unemployment and a stagnant economy since last autumn”, Reeves sighed. The media have mostly shared Reeves’ pessimism.

Savers will suffer. “The thrifty are being progressively impoverished by burgeoning bills, falling incomes and depleted savings accounts”, opined Ruth Sunderland in The Daily Mail, though she hoped Sir Mervyn King and the Bank of England are right in claiming that the “spiral [of inflation] is running out of steam.”

The inflation will cost the government. Polly Curtis of The Guardian’s Reality Check blog said the government stands to spend about £2 billion more on benefits and that will put a further squeeze on public services.

Unconvinced by King, Osborne. Peter Hoskin on The Spectator’s Coffee House blog mocked Osborne and King’s assertion that the inflation is just temporary. Hoskin doubted “their position” that once temporary factors — such as oil prices and inflationary taxes — are removed from the equation, “then prices will come rattling down.”

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