Tuesday, November 15, 2016

Surprise fall in UK inflation rate measured by CPI

Figures released today for Consumer Price Index inflation showed a surprise drop back below 1% pa.

According to the Office for National Statistics, the annual rate of increase in the Consumer Prices Index (CPI) measure of inflation fell to 0.9%, from 1% in September.

It had been forecast to be 1.1% as the fall in was expected to push prices higher.

However, the respite will, sadly, be temporary. The ONS said factory gate prices and the costs of raw materials rose much faster in October. The price of goods leaving factories rose by 2.1%, faster than expected and the biggest increase since April 2012. And costs faced by producers for raw materials and oil showed a record monthly jump in October, up by 4.6%.

"After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well," ONS statistician Mike Prestwood told the BBC.

"However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops," he said.

The cost of clothing and university tuition fees rose more slowly than in 2015, however, helping to keep inflation in check. The ONS said certain games and toys, overnight hotel stays and non-alcoholic beverages fell in price. But there is an expectation among economists that inflation is set to rise, fuelled by the fall in the value of sterling since the Brexit referendum in June, which has pushed up the cost of imports.

On Tuesday, Bank of England governor Mark Carney told the Treasury Committee that "the thinking now is that inflation is going to go above target... We see more inflation coming through in 2017-18, and then a tail in 2019."

Inflation is, in historical terms, still extremely low. It has been below the Bank's 2% target for nearly three years. Last year it was zero, the lowest since comparable records began in 1950.

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