This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
By
Where next?
The concern is that this could prompt the "wise men and women" of the Bank of England's Monetary Policy Committee (MPC) to start increasing interest rates once again. It is their job to keep inflation around the target rate of 2.5%. For the past eight months they have kept the base interest rate steady at 6%.
One of the reasons for the increase in inflation is the rapid rise in the cost of motoring brought about by the rise in the price of fuel. While oil prices seem to have stabilised at the moment there does not appear to be any real chance of them falling significantly before the winter period is over.
Rates hike?
It is clear that the spectre of inflation has not yet been banished for ever. While the underlying rate of inflation has been below the Government's target of 2.5% for the last 18 months it is now getting perilously close to that level. This means it now looks much more likely that we have not yet seen the peak of the interest rate cycle.
The MPC have only one weapon in their fight against inflation and that is to change the interest rate. They move it up if inflation is looking like it might exceed the target rate in the medium term, and aim to lower it if inflation is lower.
Pension poser
The September retail price index is of particular interest to pensioners as the annual upgrading of the state pension and other benefits is usually directly linked to the September inflation figures. Last year, with headline inflation hitting a 36 year low of just 1.1%, the state pension was increased by just 75 pence a week. With headline inflation at 3.3% people on the state pension will see their incomes grow by £2.23 a week in April 2000.
Mind you, the Labour Government are still smarting at the reaction to last year's 75 pence rise. The Chancellor, Gordon Brown, hinted very strongly that he will announce an above-inflation rise when he delivers his pre-Budget report in November.
Euro perspective
The UK has had an inflation rate lower than the average in the European Community for some time now, but interest rates higher than the average in the European Community. This, coupled with higher growth rates, is one of the main reasons for the strength of sterling when compared to the euro.
Today, the German Federal Statistics Office also released inflation figures that showed underlying inflation in Germany has now hit 2.5%, the highest annual rate since December 1994, and a massive jump over the August figure, which was just 1.8%. Again the main culprit has been the increase in the cost of fuel.
The strength of the pound is helping to keep price rises in check as it makes imports from our main trading partners in Europe cheaper. But this can be a double edged sword. If the pound begins to weaken against the Euro then inflation will tend to rise more rapidly.
Despite the rise in inflation, the current levels are still much lower than most of us have been accustomed to throughout our lives. The lack of ability for manufacturers and retailers to increase prices shows just how competitive modern business is in the UK. Companies in such sectors can not rely on improved prices in the future. The winners will be the ones that are able to continuously squeeze their margins and reduce their prices.