Inflation stable despite rising food prices

Reuters

The UK’s key inflation rate remained stable in the month of October to five-and-a-half-year high of 3%, according to official figures.

Higher food prices were offset by lower fuel costs, the Office for National Statistics (ONS) has said.

The price of food and non-alcoholic drinks rose at an annual rate of 4.1%, the highest since September 2013.

The Consumer Prices Index (CPI), was expected to increase, with the Bank of England, forecasting it would peak at 3.2% for next fall.

The official target for CPI is 2%.

If the CPI rate of inflation had risen above 3%, Bank of England governor Mark Carney was forced to write to the chancellor explaining why it has been so far above target.
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Maike Currie at Fidelity International said Mr Carney could “breathe a sigh of relief this month”.

However, he added: “While the Bank of England has raised interest rates at the beginning of this month, given concerns of inflation, it will take some time, inflation to fall back closer to the 2% target.

“This means that cash-strapped consumers will continue to feel the pinch, wages lag price increases.”

While food price inflation picked up the last month, this was offset by the decrease in the cost of fuel and lower furniture prices, the ONS said.

The fall in the value of sterling compared to the last edition of the Brexit referendum has contributed to the recent rise in inflation, increased the cost of imported goods and services.

However, Chris Williamson, chief economist at IHS, Markit, said that the latest inflation figures “adds to the sense that the worst of this impact is already past.”

“Data on business costs, which tend to change before the changes in consumer prices, have already shown signs of having reached the peak in the first part of the year,” he added.

At the beginning of this month, Sainsbury’s chief executive Mike Coupe said the UK was “probably through the worst” of rising food prices following the slide in the pound.

Yael Selfin, chief economist at KPMG, said the “relatively positive” news on inflation could prompt the Bank plan a lesser number of rate increases in the next two or three years.

“That can help support a vulnerable economy of the UNITED kingdom in the process of leaving the EU, but at the same time, it could put further strain on investors and significant sectors of the economy, such as banks and insurance companies, while fueling the potential pockets of over-exuberant asset prices,” he said.

October the Retail Prices Index (RPI), a separate measure of inflation, was up 4%, from 3.9% in the month of September. Government index-linked savings products, and some train ticket prices to rise in line with RPI.

The ONS’s preferred inflation measure, CPIH, which contains owner-occupiers housing costs, was unchanged at 2.8%.