Inflation rockets to five-year high

Lucy Hill
December 12, 2017

The country's retail inflation rate, as measured by the Consumer Price Index (CPI), stood at 4.88% in November, against October's 3.58 per cent, showed official data released on Tuesday.

Inflation has delivered an unwelcome Christmas surprise for households, investors and the Bank of England as figures released today defy the consensus the United Kingdom consumer price index had peaked at 3 per cent.

But because one of the main reasons behind the surge in inflation has been the pound's plunge since last June's vote for Brexit - about 12 percent on a trade-weighted basis - the BoE has said it expects it to fall slowly over the next three years to just above 2 percents as sterling steadies.

The move could lead to Bank of England governor penning a letter to Chancellor Philip Hammond to explain why it is more than 1% away from the 2% target. Core y/y inflation remained unchanged at 2.7%.

Upward pressure on CP came from competition in the airline industry as air fares fell by less than they did a year ago, while there was also some price pressure in household services, recreation and culture, food and drink, as well as restaurants and hotels.

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GBP/USD ticked higher after data from the ONS showed United Kingdom inflation hitting 3.1%, up from 3% in October.

He added that the prices of raw materials and goods leaving factories continued to increase as oil and petrol prices continued to rise. "Instead of focusing on the current inflation rate, the most important trigger for higher interest rates will be wage growth, which has so far remained stubbornly anaemic, meaning the attention now shifts to tomorrow's labour market data".

He said the increase will fuel some expectations that interest rates could soon rise again.

"It's quite possible that inflation is now close to its peak", said Lucy O'Carroll, chief economist at Aberdeen Standard Investments. The Bank of England has a tricky tightrope to walk. The more recent reduction in GST rates for many goods and services might mitigate upside pressure on inflation in the months ahead. Given how dominant services are in the economy, this could feed through to inflation overall.

Other reports by TheDailyFarc

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