Sharp Rise in UK Inflation
The UK inflation rate rose unexpectedly to 3.5% from 2.9% the previous month. There are two measures of inflation the Retail Price Index (RPI) which measures a general domestic inflation by measuring the cost of a fixed basket of retail goods.Consumer Price Index (CPI) is a second measure of inflation which is a more general measure of inflation and is the measure targeted by the Bank of England.
The increase was a result of the rising of VAT back to 17.5% and higher petrol prices. However, this rise has taken the CPI more than 1% above the government target. Mervyn King must write a letter to the chancellor to explain the rise.
Many economists had fears that inflation would begin to rise with the injection of £200bn into the economy through quantitative easing. (QE)