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Is inflation making a comeback?

Economic figures this week are set to show that inflation has rebounded from recent lows with concerns it could become a major issue in the medium to longer term. Depending upon which inflationary measure you use, the UK rate of inflation has been negative or just above zero for some time but with UK base rates still at 0.5% there is a feeling that the increase in the price of oil and other elements of the inflation formula could be coming together to push inflation back into the limelight.

In simple terms, inflation reduces the power of the pound in your pocket and leads to increases in wages, costs and other elements of the economic environment in the UK. If left unchecked, and indeed lending is available at rock bottom prices, it can literally ruin an economy even in the early stages of recovery. Therefore the UK government need to find a balance between low base rates, wage restraint and the containment of inflation. Contrary to popular belief, controlled inflation is actually a vital element of a growing economy but if it is left to rise out of hand it can be very difficult to bring back under control.

Even if the economic figures to be released this week show that inflation is coming back to life, it is unlikely that UK base rates will be affected in the short term.

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