Short Term Rise in Inflation Should Not Deter Low Interest Rate Policy


17th August 2011

Commenting on the news that CPI inflation rose to 4.4% in July, Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:

'Inflation is set to rise over the next few months before falling back and it is important to remember that part of the current level of inflation is due to the fact that VAT is 2.5% higher this year over last year.  That anomaly will disappear from the inflation figures in 2012.

'This month's figures should be of minimal concern in the longer term and it now seems clear that the Bank of England is more worried about the events in the Eurozone affecting our economy on the downside than they are about an overheating domestic economy.  For Scottish businesses, it is clear that most inflationary pressures are external in origin, such as energy costs and the rising price of raw materials.  Conventional monetary policy may not be able to address these issues and we therefore need to continue to guard against downside risks by maintaining low interest rates and looking again at extending Quantitative Easing.'

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