The Bank of England thinks this effect will be temporary, and that CPI inflation will fall towards 1 per cent later next year.
There are, though, (at least) four questions raised by this.
1. What should we make of the recent rise in core inflation? Today's rise is not due merely to base effects. There was also a rise in "core" inflation (which I define as the rate excluding food, petrol and utilities) to its highest rate since last November, just before the VAT cut. This was driven by small but widespread price rises last month: for (among other things) household appliances, insurance, soft drinks and most notably used cars, which are 13.2 per cent dearer now than a year ago.
If we're lucky, this rise in core inflation is temporary. It's a response to last autumn's fall in sterling, which raised import prices, and to the car scrappage scheme. If so, inflation will fall back next year.
However, it might be a sign that underlying inflationary pressures are still with us.
2. Could the rise in inflation raise inflation expectations, and thus be self-perpetuating?
The Bank hopes not. It thinks that high unemployment will stop workers pushing for wage rises to cover higher inflation, even if they do expect it to persist. However, with unemployment so concentrated among the young, it's possible that we're heading towards a two-tier labour market, in which unemployed workers don't bid down wages for those in work.
3. What role does the recession play in reducing inflation?
Between 1997 and 2008 there was next to no relationship between UK unemployment and subsequent moves in inflation. This could suggest that domestic spare capacity has little effect on inflation. Alternatively, it could just mean that this is the case in "normal" times when unemployment is low, but that huge recessions do drive down inflation: they did so in the early 1980s and 1990s. However, this is not happening yet; looking at the core inflation rate in my chart, you'd never guess that unemployment is at a 12-year high.
4. What's going to happen to sterling?
The least bad guess is that it will remain around current levels. To the extent that inflation has risen because of higher import prices last winter, this suggests it will fall back because of favourable base effects.
Here, though, is a risk. Maybe later next year, overseas central banks will raise rates before the UK - say because their recoveries are stronger and/or because the policy tightening in the UK takes the form more of fiscal than monetary tightening. If so, carry traders around the world could short sterling, causing it to fall steeply, thus raising import prices.
For what it's worth, my hunch is to side with the Bank, and regard the next few months' rise in inflation as temporary. But my hunch is worth very little. The more important point was made by Mr King last week: "The outlook for inflation is again highly uncertain, with risks in either direction."
