Food and fuel prices 'reasons for record inflation'

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Food and fuel prices 'reasons for record inflation'

Wed 18th Jun 2008

Bank of England governor Mervyn King has blamed unforeseen price hikes in food and fuel for May's 16-year inflation high.

In the open letter he was required to write to chancellor Alistair Darling, he said the increase in inflation to 3.3 per cent was mainly due to "unanticipated increases in the prices of food, fuel, gas and electricity".

Mr King noted that world agricultural prices increased by 60 per cent and UK retail food prices by eight per cent.

Oil prices rose by more than 80 per cent to average $123 (£63) a barrel and wholesale gas prices by 160 per cent.

Inflation is likely to rise to more than four per cent in the second half of the year, Mr King warned.

The Financial Times reported a "lukewarm" response to Mr King's letter, saying markets had found it vague on the causes of inflation and on predictions for interest rates.

Paul Dales, an economist at Capital Economics, told Reuters that since inflation was being blamed on global issues, the organisation believed interest rates were "likely to stay on hold for now".

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