Ignore inflation at your peril

The Motley Fool comments on the ONS December inflation figures

David Kuo, Director at popular financial website The Motley Fool - Fool.co.uk, says: "The latest inflation numbers from the Office for National Statistics are worrying.

The Consumer Prices Index rose from 1.9% to 2.9% and the Retail Prices Index jumped from 0.3% to 2.4% in December.

"However, today's surge in inflation is unlikely to be the last that we hear of rising prices.

These are not statistical anomalies that we can casually wave away but represent a real dent in the purchasing power of the pound in our pockets.

"The return of VAT to 17.5% this month following the pointless 2.5% cut last year is likely to stoke inflation further.

Consequently, the jump in inflation should be a wake-up call for all of us.

We ignore it at our peril.

"The Bank of England is relying on a mixture of consumer lethargy and the burden of household debt to hold down demand.

This should dampen domestic demand-led inflation.

Meanwhile, stubbornly high levels of unemployment should temper wage inflation.

But the Bank is powerless to control imported inflation, which is just as pernicious.

"The use of crude macroeconomic tools to control something as stubborn as inflation is tantamount to fine-tuning a watch with a shovel.

Therefore, it is vital that we do some proper fine-tuning ourselves to ensure rising prices do not erode the returns on our investments.

"Leaving money sitting around idly is the worst thing we can do given the potentially inflationary effects of Quantitative Easing.

Investing our nest eggs in a properly diversified basket of shares should ease the pain.

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