Inflation Rising, Stormy Waters Lie Ahead

14/12/10 -- The UK rate of inflation continues to rise, led by spiralling food prices*, with data from the Office for National Statistics today saying that CPI stood at 3.3% last month.

It remains well above the BoE's target rate of 2%, where it has now been for all of 2010.

The impact of recent energy prices rises, and those already in the pipeline for early 2011, make it look extremely unlikely that we will get anywhere near the target rate anytime soon. Even the BoE themselves now admit that.

The VAT increase pencilled in for next month is only likely to make matters worse too.

Meanwhile the price of petrol continues to rise. Diesel locally is now around 125.9 ppl, within 7/8ppl of where it was when crude oil hit USD147/barrel in July 2008. And that obviously has a direct impact on just about the price of everything.

The television last night was full of news reporters from around the country informing us on just how many council jobs were going to be lost in their area in 2011. The GMB union say that almost 74,000 are at risk of being axed next year on the back of the recently announced austerity measures.

With prices rising, particularly for food and fuel, unemployment looming for some and benefits being reduced for others there's some pretty severe belt tightening in store for many people next year by the looks of it.

That doesn't augur too well for the long-term sustainability of GBP200/tonne wheat or GBP400/tonne rapeseed in my humble opinion.

*UK food price inflation was 5.5% last month, and it's now more than double that in China according to figures out from there over the weekend.