SIMON WATKINS

THE headlines about inflation last week gave the impression that we had no need to worry about rising prices. But the headline figure was only part of the story. It is quite true that the official Consumer Prices Index showed inflation at just 0.6 per cent in August, actually slightly lower than most forecasts.

But input price inflation was a whopping 7.6 per cent. This figure measures the cost companies are paying for raw materials, fuel, energy and so on – and this sharp hike in costs is not something that can be ignored.

The main reason for the jump was oil prices which were falling this time last year. The weaker pound – making imported raw materials more expensive – is also likely to be a factor and with the pound still down more than 10 per cent since late June, that pressure is likely to continue.

What this shows is that so far businesses are doing their best to absorb these higher costs rather than passing them on to shoppers. In the short term that is obviously welcome to consumers, but will be a huge pressure on company profitability, with all the effects that involves including pressure on wages. And, almost inevitably, the higher input costs will end up in higher prices on shop shelves.

The weaker pound has brought benefits to many sectors, including the leisure and tourist industry (see Page 91). But it is not a free lunch.

THE decision to press ahead with Hinkley Point C – the nuclear plant to be built by French group EDF with Chinese backing – looks like being the worst of all possible worlds. There were two principal objections to the plan: the price guaranteed to be paid for Hinkley’s electricity at £92.50 per Mwh was too high; and the worry that such a key piece of UK infrastructure should be one third owned by a Chinese state company.

The deal agreed remains at the same price, so no gains there. The ‘new safeguards’ over foreign investment amount to very little indeed, involving a veto power for the UK Government against the plant being sold before it was completed (hardly a major worry) and the Government having a golden share in future nuclear plants. There is every chance China will still be a key player in future nuclear reactor plants in Suffolk and Essex. None of the critics of Hinkley are any happier, including, as we report this week, the rest of the UK energy industry and major electricity users. The first want to be protected from any blame for higher electricity costs and the latter are keen to get subsidies to protect them from those higher costs.

In the meantime, EDF and China have been greatly annoyed by the prevarication. A lot of sound and fury. No significant change.