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UK inflation rises to 3.2% in October pushed by higher fuel prices

Friday, November 19th 2010 - 05:01 UTC
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Bank of England governor Mervyn King Bank of England governor Mervyn King

The UK Consumer Prices Index (CPI) inflation rate rose unexpectedly to 3.2% in October, official figures show, on the back of higher fuel prices. Analysts had expected the CPI figure to remain unchanged at 3.1%.

The news forced Bank of England governor Mervyn King to write again to the chancellor explaining why inflation has remained more than 1% above target.

Meanwhile, Retail Prices Index (RPI) inflation fell slightly to 4.5%, down from 4.6% a month earlier. RPI contains a bigger share of housing costs, and is used to calculate many benefits payment and pensions.

Higher fuel prices made a large contribution to the rise in inflation in October, according to the Office of National Statistics bulletin. Prices for fuels and lubricants jumped 1.8% versus September, in part due to the higher road fuel duty that came into force on 1 October.

The good news for lower-income households is that food price inflation slowed down. Meat prices were unchanged, thanks to a drop in the cost of pork products, while vegetable prices fell 1%, led by a big drop in the price of cauliflowers.

Annual producer price inflation also accelerated, to 4% in October from 3.8% in September.

“The current elevated rate of inflation largely reflects a number of temporary influences,” said Mr King in his letter to the Chancellor, George Osborne. He noted the rise of VAT to 17.5% in January, rising oil prices and increased costs of imports thanks to the weaker pound.

“CPI inflation is expected to remain above target, and at a somewhat higher level than expected three months ago, for a period of a year or so,” the Bank governor added, blaming a recent rise in global commodity prices.

“Indeed, over the next few months the inflation rate might rise further.”

While emphasising repeatedly the uncertainty of the inflation outlook, Mr King said that the monetary policy committee's central view remained that spare capacity within companies and in the labour market would continue to put downward pressure on inflation in the longer term.

The inflation rate has now remained above the 2% target by one percentage point or more for 11 months, and Mr King has had to write four letters to the chancellor this year.

But with the new government having announced the biggest round of budget cuts since World War II, the Bank still expects the resulting slowdown in spending to bring inflation down over the next two years.

The Bank's monetary policy committee (MPC) voted earlier this month not to change its current policy position. In October's MPC meeting, two members dissented, with one wanting to tighten the money supply via a rate rise, while another wanted the Bank to loosen money by restarting quantitative easing.

Categories: Economy, International.

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  • Typhoon

    Wow! 3.2%. That's frightening. Hang on, isn't Argentina's inflation 10 times that. Oh, yeah. We're OK then.

    Nov 23rd, 2010 - 06:33 pm 0
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