King’s letter is backed by Osborne

Julian Harris
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BANK of England governor Mervyn King sent his sixth letter in 15 months to chancellor George Osborne this week, as inflation shows few signs of returning to its two per cent target.

King is obliged to write a letter of explanation every three months as to why inflation remains more than one per cent above target.

“It’s always a matter of concern when inflation is above the target,” Osborne said last night, “but the argument made by the governor of the bank in his letter to me is convincing, which is that inflation is set to fall next year and be back on target.”

King yet again laid the blame on high global commodity prices and the government’s VAT hike which came in this year.

But yesterday’s shock spike to 4.5 per cent in the consumer price index (CPI) was largely attributed to soaring travel costs, prompted by the Royal Wedding and cluster of other bank holidays.

Air fares rose an eye-watering 29 per cent, while prices of alcohol and cigarettes hit a record monthly spike of 5.3 per cent. The monthly one per cent uptick in CPI was the equal sharpest of all time.

Core inflation – which excludes energy, food, tobacco and alcohol – jumped to 3.7 per cent in April from 3.2 per cent in March.

Inflation excluding direct taxes (CPIY) was also up by half a percentage point, to three per cent.

The retail price index (RPI) fell slightly, to 5.2 per cent.