In light of the margin of spare capacity in the economy caused by the recession, Charles Bean asks why inflation is so far above the MPC's 2% target, and higher than the MPC expected. He points to three factors: strong global price pressures, particularly for energy and other commodities; the depreciation of sterling following the onset of the financial crisis; and the increase in the main VAT rate to 20%. He goes on to describe how these factors are likely to have affected inflation, and by how much.
Published on
03 March 2011
Press release