As the Office for National Statistics has reported this morning:
- The Consumer Prices Index (CPI) rose by 3.5% in the 12 months to April 2025, up from 2.6% in the 12 months to March.
- On a monthly basis, CPI rose by 1.2% in April 2025, compared with a rise of 0.3% in April 2024.
- The largest upward contributions to the monthly change in CPI annual rates came from housing and household services, transport, and recreation and culture; the largest, partially offsetting, downward contribution came from clothing and footwear.
- Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.8% in the 12 months to April 2025, up from 3.4% in the 12 months to March; the CPI goods annual rate rose from 0.6% to 1.7%, while the CPI services annual rate rose from 4.7% to 5.4%.
So, as we always knew would happen, government permitted above-inflation price increases have fuelled inflation.
I get why council tax had to rise, although that was almost entirely because the government would not increase taxes on those with the greatest ability to pay in our communities, with the resulting funds being used to relieve pressure on councils.
It was, however, gas, electricity, phone, rail, water and other bills where price increases at well above inflation rates - indeed, where those price increases at above inflation rates are built into permissible price models by regulators - that drove this increase.
Now we will have idiots at the Bank of England calling for an end to interest rate cuts, and demanding that people must be punished for the fact that prices are rising when these increases were sanctioned by the government, in most cases, to fuel the excess profits of already bloated businesses.
These prices suggest just how bad the regulation of privatised monopolies in the UK is.
The reaction will suggest why the Bank of England cannot be trusted with setting interest rates.
The overall failure to manage the economy shows why ministers need to learn how to manage an economy.
Right now, they have no idea what they are doing, and it's showing.
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Some of the detail in the ONs report is extraordinary. The prices index was sharply up last month. But why? And is it a blip or will it last?
The largest component of increasing prices appears to be domestic fuel – electricity and gas – which had fallen significantly in the 12 months to April 2024, so the number last year was depressed by that. The rise this year is due to an increase in the OFGEM price cap. And that is driven by the insane pricing mechanism driven by market prices of gas.
Also the Ofwat regulated prices of water and sewerage rose by 26.1% (!!). So clearly this marketised and financialised monopoly sector is working well. Not.
Air fares rose by 27.5%. I don’t know how many readers flew last month – I didn’t – but part of this increase is due to the tested prices being in the middle of the Easter holidays. So the following week the number would be completely different and lower. Do they take no account of this calendar variability? What impact does that have on the overall number?
But I’m sure everyone will be delighted to hear that the (largely fictional) owner occupied housing costs were down slightly.
And Rachel Reeves is still spinning platitudes about going further and faster. If you are going in the wrong direction, that is not a winning strategy.
Agreed
This is one of the fundamental problems with the way inflation is presented. Because it is the difference between prices this year and the same time last year (i.e. the slope of the prices index averaged over the last 12 months) it is as much affected by increases or decreases a year ago dropping out of the calculation as it is by increases or decreases in the last month. This creates all sorts of artificial changes like the rapid drop in inflation in the early months of 2024 which was almost entirely caused by higher inflation the previous year dropping out of the calculation. The real problem is that core CPI (excluding energy, food, alcohol and tobacco) and services CPI have both been consistently above the BoE’s target for a long time, so there is more inflation baked into our economy. We are going to see another twist to inflation come next September when the BoE is expecting inflation to peak at 3.7% as this figure is used for setting benefits for the following year (including the CPI part of the state pension triple lock) and that means that Reeves is going to have to find even more money for benefits in her next budget. Pushing up taxes on employment instead of on the super-rich may only encourage her to make another tax raid on those who are already poor.
With Trump and his introduction of tariffs on all other countries, even those whose only inhabitants are penguins, she has the perfect justification to ditch the manifesto pledge on taxation because his victory and subsequent actions could not have been predicted, but as a Tory Chancellor, I don’t doubt that she will continue to hammer the working people.
Ah, inflation’s back – and it didn’t come quietly. It kicked in the door, emptied the fridge, drank all the wine, and left a note on the gas meter saying, “Good luck.”
CPI’s up 3.5%, and surprise! It’s not sourdough and fancy lattes pushing prices – it’s rent, gas, train fares, and the basic cost of existing in Britain. In other words, the essentials – which are now luxuries – controlled by privatised monopolies with all the charm and restraint of a toddler with a flamethrower.
Regulators? Please. They’re not regulating – they’re lifeguards at a pool party for CEOs, handing out champagne and looking the other way while utility companies do cannonballs into your direct debit. It’s less Ofwat and more Off you pop with your complaints.
And right on cue, the Bank of England will gallop in on its trusty steed, Moral Hazard, demanding higher interest rates to “cool inflation” – aka punish mortgage-holders and renters because Thames Water needed another bonus pool. It’s like blaming the fire on the people trying to put it out while the arsonists sit on the board.
Ministers, meanwhile, continue their unique brand of economic cosplay – SimCity: Apocalypse Edition – where every policy feels like a dare and every spreadsheet is a cry for help.
But imagine, just for a moment, that we stopped pretending the government runs its finances like a hungover student on a prepayment meter. Enter Modern Monetary Theory – MMT – or as it’s known in Westminster, witchcraft.
MMT starts from a wild idea: that the UK government, which issues its own currency, doesn’t need to “find” money down the back of the national sofa before spending. It can invest in real things – health, housing, clean energy, regulation that works – and use taxation not to fund spending, but to manage inflation and inequality. Radical, I know.
Instead of jacking up interest rates every time BT sneezes out another price rise, we could tackle inflation at the source: by taxing excess profits, freezing price gouging, and investing in services that actually increase the economy’s capacity. You know – actually doing things, rather than playing economic Calvinball with people’s livelihoods.
We could stop funnelling billions into the black hole of “market-led solutions” where the only thing that trickles down is misery. Spend first, tax strategically, and stop pretending that poverty is a macroeconomic tool.
But alas, here we are. Gas bills up. Wages flat. The Bank of England itching for another rate rise like it’s a nervous tic. And ministers staring at inflation graphs like cavemen discovering fire – only less competent and more flammable.
So cheers to the invisible hand – currently rifling through your wallet, helping itself to your pension, and leaving you with a note that says, “tighten your belt.” Again.
Dear Sir Kirr,
10 / 10 for the UK’s economic performance. It shows clearly that believing in our system, even when plebs and idiot economists stuck in the past are vociferous in their objections, brings rewards in the end.
We’d like to give special kudos to your minister for finance – sorry chancellor, you Brits are soooo cute sometimes – she’s a battle-hardened drum beater for sure!
Keep up the sterling work (pun intended!)!!
Yours in appreciation,
The global Neoliberal elite
It seems to me that the CPI is misleading (and indeed partly fictional as you point out) and subject to irrational distortion. What most people think of inflation is as an “average” increase in their costs. I suspect most people realise that it varies with personal circumstances and treat it as a guide. But the CPI is not this.
I was never convinced by the change from RPI to CPI in which, as I understand (having read the technical definition) uses a geometric (rather than arithmetic) mean for some parts of the basket of goods and services. This, as I understand, is to compensate for “substitution”, i.e. when people buy something similar but cheaper when what they previously bought becomes more expensive. But that only works for some degree of substitution. So it’s a “fudge”. And, anyway, if people have felt moved to buy a substitute, that doesn’t mean the product they wanted hasn’t increased in price. So maybe we need to get rid of that part of the CPI.
Then, as both you and Andrew pointed out, 10% of the CPI index is purely a fictional sum paid by homeowners to themselves. That’s utter nonsense and clearly should be thrown out (compatibility with other country’s CPI measures be damned).
Then there’s the nonsense of the way energy costs are charged. Since energy supply is mostly a monopoly (is there really effective competition between companies who administer billing?) it makes no sense to treat this a commercial enterprise. The only logic thing is to nationalise it.
And then we have all the other charges controlled by government. I guess this includes sales taxes (including VAT). The government chooses to vary these prices. Then, if CPI increases, the Bank of England increases interest rates. Increased interest rates, in turn, cause further inflation by increasing the cost of business (via business loans) and houses (via mortgages). So this further amplifies the change to CPI.
Given that RPI is so arbitrary and subject to distortion, and that it guides macro economic policy perhaps the government should control it directly. VAT receipts are about 6% of GDP. So if VAT were reduced from 20% to 15%, say, CPI would be reduced by about 1.5%, taking the CPI down to the (arbitrary) target level of 2%. Then the BoE would have no excused not to reduce interest rates.
Of course, if you reduce VAT, neoliberals would say that would stoke inflation. It seems to me that is a difficult argument to sustain if inflation is measured by CPI which is directly reduced by reducing VAT. Then, of course, neoliberals would say that the government would have to borrow more which, through gilt sales, would push up interest rates. Again that is a difficult argument to sustain when the direct effect of cutting VAT is to reduce inflation. But that their arguments against decreasing VAT don’t make sense won’t trouble neoliberals who are quite capable of arguing black is white, and frequently do.
OK, so the government would need to avoid reducing it’s expenditure. The only reason that it would do so is to achieve both a balanced budget (almost always a mistaken neoliberal trope) AND to make up any shortfall via gilt sales (a completely unnecessary and damaging convention). But if it did want a nominally balanced budget it should do what everyone else does and borrow from a bank. Specifically it should borrow from the Bank of England, which it conveniently owns. Any borrowing from the BoE cost nothing because interest payments from the government to the Bank are returned to the treasury.
And, OK, the government cannot just spend willy nilly, it has to ensure there it no excessive inflation. But that’s the whole point at the moment. The inflation metric, the CPI, is misleading. Reducing VAT would reduce CPI. And the economy is not currently in danger of overheating (does anyone really think the UK economy is near overheating?)
The CPI is a misleading mess. The government doesn’t seem to have a clue about how to run an economy. Is it any wonder the UK economy is not so great of late?
I have published figures for UK per-capita living standards deflated by the RPI. In 16 years from 2007 to 2023 they fell by 29.7%.
As Tim Kent says, the RPI is capable of public understanding, because it is a simple average. At the other extreme, the “real GDP” figures that appeared in the Reeves budget last October predicted positive living standard growth five years ahead. I asked the OBR how the figures were calculated and they referred me to the ONS. All I could get out of the ONS was that they are a whole-economy measure.
Where is that data?
The govt focus on restoration of public finances rather than simply driving public service improvements was always going to lead to CPI going up. Making Inflation worse while govt busy claiming they are tackling inflation!
HMT has no other way of thinking. It acts like the Finance dept of a big corporate putting pressure on costs as the only way to profit.
The UK needs a function at the centre of govt that wants to drive the economy. This can’t be the Treasury or indeed the Chancellor whose main focus always seems to be public finances.
A dept of Economic Affairs dedicated to building a thriving economy that works for all needs to be established.
I suspect this needs to be combined with a restructure of the roles of OBR, HMT and BoE to ensure they have their responsibilities rationalised & their organisations made subservient to the new ministry for economic affairs.
No improvement in the fortunes of ordinary people or transforming the UK economy so its fit for the 21st Century is likely as long as the Triumvirate of HMT, OBR and BoE remain in place with their remit intact.