Fuel off­sets food as UK in­fla­tion level sta­bilises

Western Mail - - BUSINESS IN WALES - Ben Woods news­desk@waleson­line.co.uk

Bri­tain’s surg­ing in­fla­tion un­ex­pect­edly held steady last month, as ris­ing food prices were coun­tered by a drop in fuel costs.

Fig­ures from the Of­fice for Na­tional Statis­tics (ONS) showed the Con­sumer Prices In­dex (CPI) mea­sure of in­fla­tion was 3% in Oc­to­ber, un­changed from a five-year high in Septem­ber.

Econ­o­mists had pen­cilled in a higher rate of 3.1%, which would have forced Bank of Eng­land Gov­er­nor Mark Carney to write a let­ter to Chan­cel­lor Philip Ham­mond ex­plain­ing why in­fla­tion is so high.

The Gov­ern­ment has set an in­fla­tion tar­get of 2%, with pro­to­col dic­tat­ing that the Bank must con­tact Mr Ham­mond if in­fla­tion ex­ceeds 3% or falls short of 1%.

The Bank, which hiked in­ter­est rates to 0.5% ear­lier this month, ex­pects CPI to peak at around 3.2% in the au­tumn, adding fur­ther pres­sure to UK house­holds grap­pling with pal­try wage growth.

The pound was 0.3% lower at US $1.31 and 0.6% down at 1.12 af­ter the in­fla­tion data.

Chris Wil­liamson, chief busi­ness econ­o­mist at IHS Markit, said there will be “red faces all round” af­ter in­fla­tion failed to ex­pand as ex­pected.

He said: “The re­cent surge in price pres­sures is pri­mar­ily due to the de­pre­ci­a­tion of ster­ling since last year’s EU ref­er­en­dum, which has in­creased the cost of im­ported goods and ser­vices, but today’s num­bers will add to the sense that the worst of this im­pact has al­ready passed.

“Data on com­pany costs, which tend to change ahead of changes in con­sumer prices, have al­ready shown signs of hav­ing peaked ear­lier in the year.

“The un­ex­pected fail­ure of the in­fla­tion rate to rise to more than 1% above the Bank of Eng­land’s 2% tar­get means Mark Carney can put his pen back in his pocket, no longer need­ing to write a let­ter of ex­pla­na­tion to the Chan­cel­lor.

“How­ever, the pol­icy pre­scrip­tion was al­ways go­ing to be merely one of wait­ing, as in­fla­tion will cool pro­vid­ing the ex­change rate does not fall fur­ther.”

An­nual food prices rose to the high­est level in four years, up 4.2% last month in con­trast to a 3.4% ex­pan­sion in Septem­ber.

The lion’s share of the growth came from veg­eta­bles, driven by a rise in the cost of premium potato crisps.

On the month, food prices grew by 0.6%, up from a 0.2% fall over the same pe­riod last year.

Elec­tric­ity, gas and other fu­els also pushed 1.3% higher on a monthly ba­sis, com­pared to 0.6% growth in Oc­to­ber 2016.

The jump was trig­gered by Bri­tish Gas, which de­cided to hike its stan­dard tar­iff by 12.5% on Septem­ber 15.

It is the first time the price rise has ap­peared in of­fi­cial data due to the time frame in which the in­for­ma­tion is col­lected.

The main down­ward pres­sure on the cost of liv­ing came from fuel prices, which fell by 0.4% month on month af­ter ris­ing by 2.3% in Oc­to­ber 2016.

Petrol prices fell by 0.9p a litre to 117.3p last month, while diesel rose by 0.4p per litre to 120.5p.

Paul Dig­gle, se­nior econ­o­mist at Aberdeen Stan­dard In­vest­ments, has backed in­fla­tion to keep ris­ing in the com­ing months.

He said: “This prob­a­bly isn’t the peak in UK in­fla­tion. The im­pact from last year’s cur­rency de­pre­ci­a­tion and the lat­est move up­wards in oil prices still have a few more months to run.

“So the Bank of Eng­land is stuck be­tween a rock and a hard place – in­fla­tion is well above tar­get, but Brexit un­cer­tainty lingers and con­sumer spend­ing growth could weaken.”

The Re­tail Prices In­dex (RPI), a sep­a­rate mea­sure of in­fla­tion, was 4% last month, up from 3.9% in Septem­ber.

The Con­sumer Prices In­dex in­clud­ing owner-oc­cu­piers’ hous­ing costs (CPIH) – the ONS’ pre­ferred mea­sure of in­fla­tion – was 2.8% in Oc­to­ber, the same rate as the month be­fore.

A Trea­sury spokesper­son said: “We un­der­stand that peo­ple are con­cerned about in­creases in ev­ery­day costs. That’s why we have cut taxes and in­tro­duced the Na­tional Liv­ing Wage, which has lifted the wages of the low­est-paid by over 6% above in­fla­tion.

“It’s also why we are bring­ing in an en­ergy cap to help peo­ple with the cost of house­hold bills.”

Julien Be­hal

> ONS fig­ures show the CPI mea­sure of in­fla­tion was 3% last month – un­changed from Septem­ber

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