Inflation?

Last week's inflation figures appeared to come as a surprise to many people. Not I think to SMEs. Since December, supplier prices to many UK businesses have been going up. This was as a consequence of increased manufacturing cost, primarily from China, and the devaluing of the pound.

Therefore to me, as a biz owner, the inflation figures were entirely predictable. What I am not entirely sure about is how the analysts missed this in the data.In theory we knew inflation was going to rise this month and we should have some idea about inflation's trajectory in the next couple of months. This leaves us with a couple of points to focus on. The first being that it appears the pound is not going to weaken significantly more and this should choke-off some of the inflation.

Secondarily, produce prices in China appear to be stabilising or perhaps falling very slightly. This might lead to a little more inflation coming through but overall I think it should stabilise and perhaps fall in the next six months. However, my guess is that deflation won't really be a problem unless there is more dramatic bad news like a major bank failure which prevents recovery in the markets for another 6 months.In fact the effect of this credit crunch may have been to choke-off a serious bout of inflation.

The timing of the credit crunch seems to have been ideal in achieving this. We may look back and say in fact we avoided a sustained period of inflation caused by sustained demand and capacity constraints in the world economy.