Mervyn King: “Bring me Adam Posen!”

The UK Consumer Prices Index (CPI) annual rate of inflation has fallen to 4%, down from 4.4% in February.

The drop was largely due to a record monthly fall in the price of food and non-alcoholic drinks, which fell 1.4%, compared with a sharp rise last year.

Retail Prices Index (RPI) inflation – which includes mortgage interest payments – fell to 5.3% from 5.5% in February.

The fall eases pressure on the Bank of England to raise interest rates.

The pound fell almost 1.5 cents against the dollar immediately after the figures were announced, to $1.6238, as investors decided the Bank was unlikely to raise rates as soon as they had previously thought.

As I’ve long thought inflation cannot stay high without complementary pay rises; it is inherently self limiting.

Adam Posen is now hopefully doing a little victory dance around Andrew Sentence.

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