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Huge rises that none of us, including Ms Lomax, can escape.


"Over the past year alone, oil prices have risen by around 60 per cent and agricultural food prices by around 50 per cent".

So said the Bank of England's deputy governor Rachel Lomax yesterday.

She also noted that the pound has fallen by nine per cent since last July, which is a straight nine per cent on the cost of any imports that happen to be costing no more than they were in local currencies.

Ms Lomax didn't say whether her calculations took in a 25 per cent leap in the price of wheat on Monday - during the day, Monday, not over the year to Monday, or even the week to Monday.

Then, a couple of hours after she had said her piece a fresh surge in the price of oil carried Brent crude to a new record just 33 cents short of EUR100 a barrel.

It is not just the size of these rocketing prices that is unsettling. It is that nobody can escape them. We go on buying food and energy regardless.

That means buying less of something else, or raising extra money somehow, or a bit of both.

And there is absolutely nothing that the Bank of England can do about it.

Higher British interest rates make not a jot of difference to the price Brent, or of spring wheat on the Minneapolis Grain Exchange, or export restrictions by Russia, Argentina or Kazakhstan.

So the Bank has no intention of doing anything so pointless.

But the prospect of this commodity inflation feeding inevitably through to drive British inflation clear away from the Bank's two per cent target this spring puts a brake on any interest rate cuts.

Yet that supposes we don't draw a collective conclusion that inflation has come back to be a fact of life again, the way it was until the mid-90s - and start acting accordingly, going on strike in pursuit of double-digit pay claims.

Last year the Bank persuaded us that the jump in the price of oil was a one-off event, that once it was over inflation would simmer back again.

So it turned out.

Trouble is you cannot keep on having one-off events year after year.

The Treasury Select committee is set to have a rare old time with the life companies' "inherited estates". These are colossal sums in with-profit funds which companies held back in years when successful investments generated more money than they needed to meet policyholders' "reasonable expectations". The committee could latch on to the expectations of home-buyers who bought endowments that don't look like paying off the mortgage they were intended to cover. Why not throw them a bung? Well, as I noted last week, these are people who have done nicely with homes they bought 15 or 20 years ago, plus compensation for mis-selling.

If MPs ask why the companies were so stingy, they can point to Equitable Life, which really did pay out its profits in bonuses, then, come the deluge, had no rainy-day cash stashed away.

There is a bitter and arcane dispute at Norwich Union, too. It wants to buy out policyholders' rights to any future windfalls.

The maths are as complicated as the rights and wrongs.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Feb 27, 2008
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