Inflation rises to highest level in five years

Andrew Cummings
October 18, 2017

Excluding the volatile food and energy components, consumer prices gained 0.1% in September - after a 0.2% gain in August -as the increase in rental accommodation slowed and the cost of new motor vehicles and the medical care index declined.

The National Bureau of Statistics has released the Consumer Price Index report, which measures inflation, with the rate dropping year-on-year from 16.01 per cent in August to 15.98 per cent in September.

Nonetheless, last month the BoE said it expected to raise interest rates in the coming months if the economy and price pressures continued to strengthen.

United Kingdom average weekly earnings in the three months to August grew 2.2% compared to the same period a year ago, which was the same as had the three months to July, which the Office for National Statistics revised up from its initial estimate of 2.1%.

"A gradual rise in interest rates would help support sterling and reduce the risk that the current surge in inflation becomes more prolonged and persistent", he said. Although much of the effect of the pound's decline has already been felt by consumers, some retailers are only now starting to pass on price rises. Noteworthy, m/m inflation rate, on average in Q3-17 (0.99%), was 3 bps lower than the average rate reported in the same period of 2016. The pound has fallen around 12 per cent since the referendum against a trade-weighted basket of major currencies such as the United States dollar and the euro.

Still positive, however, is the sustained month-on-month deceleration in the rate of increases in general price levels, for the fourth successive month, specifically at 0.78% (last recorded in November 2016), 19 bps lower than the 0.97% recorded in August.

The report indicated that food price inflation increased by 20.32 per cent (year-on-year) in Sept, up marginally by 0.07 per cent points from the rate recorded in August (20.25 per cent). Prices in London alone rose 2.6 per cent.

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