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Price inflation is soaring at a two year high of 1%. It’s correct that consumer price inflation is at a two year high. But that’s far from a soaring rate of inflation. UK inflation soars to two-year high. Evening Standard, 18 October 2016 It’s correct that prices are rising faster than at any point in the past two years. They’re also rising 0.4% faster than the Office for Budget Responsibility expected before the referendum. But by historic standards, the current 1% rate of inflation is still relatively low. And it’s not uncommon for the rate of inflation to rise by 0.4 percentage points from month to month, as it did between August and September. It’s done that in one out of every six months since 1990. By most standards, 1% is still a low rate of inflation. The Bank of England’s target is double that, at 2%. For the past two years, the inflation rate has been so low that Mark Carney, the Bank’s governor, has been required to write quarterly letters to the Chancellor explaining why the Bank is missing its target by more than 1%. The Bank’s target is symmetric, which means that it’s not necessarily better for inflation to be too low than too high. It’s also a flexible target. It’s considered okay for inflation to be a little higher or lower, if that’s what’s needed to keep the economy growing and employment high. And 2% inflation might not be the target for ever. There’s nothing magical about the number, it’s just what most central banks judge to be a good target. Some people have argued that central banks should be aiming for higher rates of inflation, like 4%. Stay informed Be first in line for the facts – get our free weekly email Subscribe No economic forecast is ever certain, but inflation doesn’t seem set to soar in the next year or so either. On average, forecasts published in the last three months expected consumer prices to rise about 2.5% in 2017.
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