Yesterday?s letter to the Chancellor from Mervyn King, the Governor of the Bank of England, explaining why the Consumer Price Index (CPI) measure of inflation remains way above the Government?s 2 per cent target, was the fourth such missive he has been forced to write in the past nine months. Given that the sole remit of the Bank?s Monetary Policy Committee (MPC) is to hit that target, this does little to inspire confidence in its credibility. Nor does the fact that just before Christmas the MPC forecast (to general incredulity) that CPI would peak at 3.5 per cent in the course of this year, before falling back. Sure enough, just two months later, the index has hit 4 per cent and is expected to rise as high as 5 per cent in the coming months. Indeed, the Retail Prices Index (RPI), which includes mortgage costs and is seen by many as a more accurate barometer of living costs, is already at 5.1 per cent.
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