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How to manage U.K.'s rising inflation

British pound sterling notes and coins

TEXT OF STORY

STEVE CHIOTAKIS: Later this morning we'll get a report on U.S. wholesale prices. That'll be the latest gauge on inflation in this country.

Over in Britain today, their latest inflation report shows consumer prices continue to rise. By more than what's comfortable to that country's central bank.

From London, here's reporter Christopher Werth.


CHRISTOPHER WERTH: In many ways, the U.K. is a special case. A recent hike in sales tax is partly to blame for the higher prices British consumers are having to pay. At the same time, those higher prices are also being driven by increasing demand in emerging markets such as China and India, which is pushing up the cost of fuel and commodities. Bank officials argue these are just temporary factors, but Marie Diron, an economist with Oxford Economics, questions just how temporary they are.

MARIE DIRON: There's a risk that this temporary phenomenon is actually quite a long phenomenon because there's no sign of oil prices coming down for a long time.

And those rising fuel and commodity prices are spilling over into the rest of Europe. Last month, inflation in the euro zone nudged up to 2.4 percent, also well above the European Central Bank's target. That means central banks in the U.K. and Europe are in a tough position. The rising cost of living puts them under pressure to begin raising interest rates in order to curb inflation. However, the fragile economic recovery may depend on those rates remaining low for some time to come.

In London, I'm Christopher Werth for Marketplace.

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