Can we inflate our debt away?

The Bank of England says inflation is due to temporary factors and should come down soon. But is the Bank deliberately keeping inflation high to erode the real value of debt? If so, how long can they keep this up before the markets catch on?

The annual rate of consumer price inflation (CPI) remained stable at 4.5% in May, the highest level since September 2008. Dearer food offset the post-Easter fall in air and sea-travel costs. Inflation continues to spread, according to Michael Saunders of Citigroup. He said that 80% of the items in the CPI basket are now rising at over 2% a year. CPI is widely expected to climb to 5% as food prices continue to feed through and energy bills rise. Unemployment fell by 88,000 in the three months to April, the biggest drop in a decade, although the trend flattened in March and April. And so far there is no sign of a wage-price spiral: average earnings grew by just 2.2% last month.

542_P04_year-on-year-cpi

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