Inflation, the bane of Britain's postwar economy, has been uncharacteristically docile over the past ten years. It lurched upwards in early 2007 but then obligingly subsided again. That relief has been short-lived. In recent months the prices of essential items such as food, heating and petrol have soared. And the prospects for hard-hit households look even grimmer as Britain imports inflation on a scale not seen for decades: commodity prices are rising and the pound is sliding.rnThese cost pressures are the biggest challenge yet to Britain's 15-year-old regime of inflation-targeting, which has underpinned the greatest price stability since the second world war. After Britain was turfed out of the European exchange-rate mechanism (erm) in September 1992, the Conservative government gave the Bank of England the job of ensuring low inflation, which was measured by the retail-price index excluding mortgage-interest payments (rpix). When Labour came to power in 1997, that target was set at 2.5%. In December 2003 it was changed to 2.0%, and inflation began to be measured by the consumer-price index (cpi) designed to be used by members of the European Union.
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