Chart of the day: Inflation falls to 3 per cent



Inflation has dropped again. CPI now stands at 3 per cent meaning that for the first time in over two years, Melvyn King won't have to write a letter to the Chancellor explaining why he has missed the Bank of England's target of within one point of 2 per cent.

Meanwhile, core CPI fell to 2.1 per cent, its lowest in over two years.

Large downward effects came from transport, alcoholic beverages, tobacco, clothing and footwear. Smaller upward pressures came from personal transport equipment, restaurants & hotels and rents.

The all-items retail prices index (RPI), which measures the change in the cost of a basket of retail goods and services, reached 242.5 in April (based on January 1987=100), up from 240.8 in March.

The CPI all goods index is 119.0, up from 118.7 in March, while the CPI all services index is 127.7, up from 126.5.

In the recent inflation report, the Bank of England (BoE) governor, Mervyn King, said that CPI inflation would remain above 2 per cent for next two years.

The Financial Times quoted Jason Conibear, director at the forex specialists Cambridge Mercantile Group:

That inflation has nudged down will be of great relief to the Bank of England but it’s a meagre ray of light in a darkening economic environment. Last week, the Bank of England said inflation would be hitting target a lot later than expected and there’s no doubt we can expect a bumpy ride on the way down.

Photo: Getty Images
Show Hide image

David Cameron’s starter homes: poor policy, but good politics

David Cameron's electoral coalition of buy-to-let retirees and dual-earner couples remains intact: for now.

The only working age demographic to do better under the Coalition was dual-earner couples – without children. They were the main beneficiaries of the threshold raise – which may “take the poorest out of tax” in theory but in practice hands a sizeable tax cut to peope earning above average. They will reap the fruits of the government’s Help to Buy ISAs. And, not having children, they were insulated from cuts to child tax credits, reductions in public services, and the rising cost of childcare. (Childcare costs now mean a couple on average income, working full-time, find that the extra earnings from both remaining in work are wiped out by the costs of care)

And they were a vital part of the Conservatives’ electoral coalition. Voters who lived in new housing estates on the edges of seats like Amber Valley and throughout the Midlands overwhelmingly backed the Conservatives.

That’s the political backdrop to David Cameron’s announcement later today to change planning to unlock new housing units – what the government dubs “Starter Homes”. The government will redefine “affordable housing”  to up to £250,000 outside of London and £450,000 and under within it, while reducing the ability of councils to insist on certain types of buildings. He’ll describe it as part of the drive to make the next ten years “the turnaround decade”: years in which people will feel more in control of their lives, more affluent, and more successful.

The end result: a proliferation of one and two bedroom flats and homes, available to the highly-paid: and to that vital component of Cameron’s coalition: the dual-earner, childless couple, particularly in the Midlands, where the housing market is not yet in a state of crisis. (And it's not bad for that other pillar of the Conservative majority: well-heeled pensioners using buy-to-let as a pension plan.)

The policy may well be junk-rated but the politics has a triple A rating: along with affluent retirees, if the Conservatives can keep those dual-earner couples in the Tory column, they will remain in office for the forseeable future.

Just one problem, really: what happens if they decide they want room for kids? Cameron’s “turnaround decade” might end up in entirely the wrong sort of turnaround for Conservative prospects.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.