Abstract
Inflation is a symptom of disease, of a general breakdown of the economic body. It results from excess of money or from excess of income, of wages, of diversion of supplies to the war economy, or results from large exports to foreign countries, or from lack of confidence in the currency, or from an inadequate tax system, but to conclude without an over-all study that any of these is the cause, is unsound investigation. Governments can regulate the rate of inflation in many different ways including the interference in markets with the effect of raising prices or lowering prices though the number of actions. According to the Office for National Statistics (ONS), inflation in the UK rose to 2.2 per cent in January 2008, 0.2 per cent above the government's two per cent target. The consumer price index (CPI) figure is higher than in December, when it was 2.1 per cent. Inflationary pressure came from increases in the cost of fuel and food, as average petrol prices rose by 1.3p in January to stand at 103.9p per litre, while food prices fell by less than last year. Clothing and footwear prices dropped over the period, as retailers discounted heavily in an attempt to encourage shoppers to spend money after a subdued Christmas. Retail price index (RPI) inflation rose to 4.1 per cent in January, up from 4 per cent in December. Although rising utilities bills and an increase in producer price index (PPI) inflation will keep upward pressure on inflation, the drop in demand for consumer products such as clothing, footwear and electricals, seen in January could offset the higher food and fuel prices. All these price changes and index raises are the results of the government interference in the economy that will be specified later in this paper.
