What's your personal inflation rate?

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The Office for National Statistics has just come out and said what most of the rest of us have been thinking for some time - that the official inflation statistics don't really bear much resemblance to most people's personal experience of inflation.

From 15th January, the ONS is planning to launch its own inflation calculator, so that people can key in their own spending patterns and find out roughly what their own personal inflation rate is.

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The ONS is hoping that this will 'help people understand the balance between rapidly rising costs like energy bills and council tax and the falling cost of items such as electronic goods and clothes.'

But we have a feeling that most people will find their suspicions are confirmed, rather than allayed by such a calculator - and we're not the only ones...

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Howard Archer of Global Insight tells The Telegraph: 'I suspect a few people might be quite shocked' by what their personal inflation rates turn out to be. 'You can envisage people going to their bosses with this and using it as a bargaining tool.'

With the January pay round coming up, this isn't good news for the Bank of England, which is feeling rather uneasy about public perceptions of inflation and the impact on wage bargaining. However, we're not so sure that a personal inflation calculator would be of that much use in a pay negotiation. After all, your employer could realistically just turn around and say - 'Well stop spending so much money on haircuts then, and buy more flat-screen TVs - that'll cut your personal inflation rate nicely.'

But even without using a personal inflation calculator, employees already have a fair amount of ammunition to draw on in their wage talks. Even the official inflation figures are all registering multi-year highs. Meanwhile, with the public sector up in arms about the idea of accepting a 2% pay rise cap - a cut in real terms - it seems likely that this month's pay negotiations will be more fraught than in past years.

Of course, this all has a bearing on interest rates. The Bank of England makes its decision for January next week. It seems unlikely to do anything but hold rates where they are - but equally, a hike to 5.25% in February is looking more and more like a done deal. And not just because of worries over wages.

Economic data out yesterday showed that mortgage lending and approvals are at three-year highs, while the service sector is growing at its fastest rate in a decade. And yet, at this time in 2006, many analysts and economists were still expecting interest rates to fall. By the end of last year, the consensus was that rates would rise once more to 5.25% - but that would be it.

But now we have more and more dissenting voices suggesting that this is not the end of the rate hike cycle. Citigroup's Michael Saunders says: 'Interest rates are likely to rise once or twice with an outside chance they could go further.' The University of Derby's David Smith, chairman of the 'shadow' MPC which meets under the auspices of the Institute of Economic Affairs, has already said that he reckons the UK base rate could be 5.75% by the end of this year.

We reckon the dissenters are much more likely to be calling it right. As Damian Reece in The Telegraph puts it - and as we've been saying for quite some time now - interest rates have been too low for too long. And 'if anyone thought we were anywhere near the peak of the rate cycle, they should think again.'

Turning to the wider markets

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Oil and commodities stocks took a battering in London yesterday as the price of copper and crude continued to slide. The FTSE 100 closed 32 points lower, at 6,287, with the heaviest losses recorded by Cairn Energy, Kazakhmys and International Power, all of which fell by over 4%. For a full market report, see: London market close

Across the Channel, the Paris CAC-40 ended the day lower, falling 36 points to 5,574. In Frankfurt, the DAX-30 closed 16 points lower, at 6,674.

On Wall Street, the Dow Jones clawed back earlier losses, which saw it fall as low as 12,403, to end the day 6 points higher at 12,480. The Nasdaq climbed 30 points, as investors took their money out of commodities and put it into tech stocks, ending the day at 2,453. The S&P 500, meanwhile, closed one point higher at 1,418.

In Asia, profit-taking saw the Nikkei fall heavily to end the day at 17,091, a 262-point fall.

Crude oil was unchanged at $55.70 this morning, having fallen nearly 5% yesterday. In London, Brent spot was nearly 2% lower this morning at $54.21.

Spot gold had bounced back to $623.20 today. Silver, meanwhile, edged up to $12.66.

And in London this morning, a survey by HBOS showed that UK house prices fell by 1% in December, the first decline in six months. The average price is now £186,035.

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