- UK CPI inflation has hit 9 per cent, soaring past the Bank of England’s 2 per cent target
- At 2 per cent inflation, prices double every generation. At 9 per cent inflation, this process takes just eight years
CPI inflation in the UK has hit 9.1 per cent. This represents the highest level since 1982, overshooting the Bank of England’s 2 per cent inflation target by more than seven percentage points. And this means trouble for governor Andrew Bailey. If the Bank misses its target by more than one percentage point either way, he must write a letter to the chancellor explaining both the reasons for the divergence and the Bank’s strategy for bringing inflation back on target. In terms of UK monetary policy, 3 per cent inflation is undesirable. But how much worse is 3 per cent than 2 per cent? And how much worse is 9 per cent than 3 per cent?
Doubling times can provide an intuitive interpretation. At a stable 2 per cent rate of inflation, general prices double every 35 years. The picture is muddied by the fact that inflation is calculated using a basket of goods, meaning that the price of some items would increase by more than 2 per cent annually over the period, and some by less. But as a rule of thumb, a basket of goods will take a generation to double in price when inflation runs at 2 per cent.