Over the last few months we have been warning of a sharp rise to come in inflation. Even Rachel Lomax at the Bank of England suggested as much just yesterday.
But a revised set of our own is due out later today. Here is the link to the data from last month on producer prices. These are the prices of goods as they are made, so this data provides the best leading indicator of where prices are going to go over the next quarter or so. Below is the graph from the ONS:
Note the large upward spikes starting last August. Generally inflation can take a year to 18 months to feed through the whole system. The second graph implies rising energy costs are the main cause, which may well be true, when you look at the graph below produced by EDF:
Note how the price is 87% higher for electricity than a year ago. EDF has raised customer prices by around 25% during in this time, so perhaps we have not seen the last of these price rises.
Finally, the other key energy component is oil, there is a great chart here from the excellent inflationdata.com:
Note the spike at the end and that oil prices have increased another 10% since the graph was last updated a month ago.
Finally, things are also looking bad for our friends across the pond, see this insightful piece in the Wall Street Journal that looks at precious metals prices too. there is a super graph too on what inflation really means to your income too.
Conclusion: We have mentioned stagflation before and now this is inevitable. What we are increasingly seeing in the numbers though is a much higher level of inflation than is currently being forecasted. Alistair Darling thinks 3% is unacceptable - we may get to double that before 2010. Don't count on interest rates falling much further this year and next year they will have to rise significantly - which will prolong the downturn/recession.