November’s Consumer Price Index (CPI) update, published today, shows a rise from 3.2 per cent to 3.3 per cent due to upward pressures from furniture, food and fashion prices.
Food and non-alcoholic drinks prices rose by a record 1.6 per cent for the October to November period, while furniture, household equipment and maintenance increased a record 1.6 per cent during the same time, and clothing and footwear prices also saw record growth of two per cent.
Core inflation held steady at 2.7 per cent in the month but as the Monetary Policy Committee (MPC) predicted in November’s Inflation report, the headline level of CPI has started to creep up.
Jonathan Loynes, Chief European Economist at Capital Economics, said: “These increases might largely reflect temporary timing effects ahead of January’s VAT hike.
“Note that measures of inflation supposedly stripping out tax effects remain very low at around 1.5 per cent.
“Nonetheless, for now at least, core price pressures do not seem to be responding to the apparent spare capacity in the economy in the way that the Monetary Policy Committee – and we – have been expecting.”
The UK’s CPI level in October was higher than the provisional figure for the European Union, the former being 3.2 per cent compared to 2.7 per cent for the latter.
Capital Economics has predicted a second round of quantitative easing to begin in February but now thinks that looks optimistic as inflation is likely to rise in the new year.
Loynes added: “There is no reason for the MPC to panic at the moment. After all, it predicted in November’s Inflation Report that inflation would rise to around 3.5 per cent by early next year.
“What’s more, we still agree with the committee’s assessment that inflation will eventually fall back quite sharply in response to low levels of activity, subdued wages growth and weak money growth.”