(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)

There are two linked but peculiarly contrary items of news this week. The Consumer Prices Index (CPI), which is the Government’s preferred measure of inflation, fell to 2.2% from 2.3% in April. However, the Retail Price Index, which is generally considered to be the more honest measure of inflation, fell to -1.1%.

Apparently, the biggest factor restricting a sharper fall in the CPI was the rise in alcohol and tobacco prices, reflecting the increase in duties introduced in the Budget in April.

Meanwhile, the dramatic fall in the cost of a typical family’s weekly essentials has been driven by sharp declines in mortgage costs since last year, while petrol and diesel are also much cheaper than a year ago.

The CPI measure of inflation has now been above economists’ expectations in five of the past seven months but it is expected to continue falling to below 1pc in the coming months.

Interestingly enough, overall household costs, which cover utilities, council tax and insurance, are 17pc lower than a year ago, while transport costs have fallen by 16pc. These falls were partly offset by a 9pc rise in food prices, adding £2.94 to the cost of a typical basket of essentials, which now costs £35.20.

These confusing figures underline one major point, which is that the UK economy is still in a dichotomy. At the moment, with all other things being equal, there is enough data to support both optimistic and pessimistic points of view. The problem of course it that life never allows everything else to be equal.

If unemployment continues to rise as is expected, the optimists may find themselves relying on pure hope rather than statistics.

(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)

Considering the scale and seriousness of the global financial crisis and its roots in the credit crunch it is reassuring The Financial Services Authority (FSA) is finally doing something about making sure it doesn’t happen again.

To that end, the FSA has told building societies it may stop some of them expanding into risky types of lending and borrowing. The plan follows in the wake of the collapse of the Dunfermline building society and the forced rescue of several other societies last year.

The FSA wants societies to have senior managers who are sufficiently skilled to oversee any riskier lending.

The Building Societies Association (BSA) has welcomed the proposal.

In the past year, eight of the remaining building societies have fallen into the red due to a mixture of losses on cash held with Icelandic banks, lending self-certified and sub-prime mortgages, and making commercial property loans.

The FSA recently accused some societies of taking far too many risks with their lending in the past few years, and of ignoring earlier warnings from the FSA about what they were doing.

The FSA believes that, when some societies diversified from their traditional business of using savers money to offer mortgages, this increased the financial risks to those societies.

The FSA’s new guidance is initially the subject of formal consultation. But there is no doubt that it intends to scrutinise the activities of building society directors much more closely than before, and to take action if necessary.

When the Dunfermline building society collapsed in March, it was discovered that it had made loans worth £628m secured on commercial properties.

Little of this was evident in the society’s published accounts, even though the FSA had been warning the society about the potential risks of its move into commercial property lending, and self-certified mortgages, since 2005.

There has been a rash of stories similar to this one in recent months. It is pretty clear to me that the FSA has decided to not only get tough, but to be seen getting tough. This is good news as it means the credit markets will be better regulated and consumers will be better protected. However, as I have commented before, this rush to be seen regulating the market is coming approximately two years after the credit bubble burst. Oops.