Consumer Prices Index jumps from October's 3.2% on higher clothing and food prices
UK inflation rose unexpectedly in November, missing the government's official target for the eleventh month in a row, as rising food and clothing prices pushed up the cost of living.
The Consumer Prices Index (CPI) rose to 3.3% last month, up from 3.2% in October, defying City expectations that the rate would be unchanged. This is the CPI's highest level for six months, and shows that prices are still rising appreciably above the government's target of 2%.
The Office for National Statistics said that food and non-alcoholic drink prices were 5.5% higher than a year ago, while clothing and footwear prices rose by 2.1%, the biggest annual rise since the CPI began in 1997.
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said that soaring wheat and cotton prices had helped to fuel inflation in November. On a month-on-month basis, the CPI was 0.4% higher than in October.
The wider Retail Prices Index (RPI), which includes housing costs, also rose last month. RPI hit 4.7% in November, up from 4.5% in October.
Andrew Sentance, the "hawk" on the Bank of England's monetary policy committee, said the data proved he was right to vote for a rise in UK interest rates. He told BBC Radio Four's World at One that the Bank's credibility would be bolstered by a series of interest rate increases.
"In recent meetings I've been asking for a quarter percent rise. That should be seen as the beginning of a process of more normal rates," Sentance said.
Housholds face more inflationary pain
The data sent the pound higher against the dollar, up around 0.2 cents at $1.5875. Analysts predicted that the stronger-than-expected inflation would worry the Bank of England, and might prompt it to raise interest rates earlier than previously expected.
The Bank is mandated to keep annual inflation, as measured by the CPI, within one percentage point of 2%. Governor Mervyn King has already written four times to chancellor George Osborne this year explaining why inflation has been running above target, and economists believe he will have to compose more letters in 2011.
"Consumer price inflation looks ever more likely to reach 3.5% in the early months of 2011 and it may very well rise further still due to elevated food, commodity and energy prices as well as January's VAT hike," predicted Howard Archer, chief European & UK economist at IHS Global Insight.
The impending rise in VAT to 20% in January may also push up inflation, as there are fears retailers may use it to disguise price rises.
Alan Clarke, economist at BNP Paribas, said today's inflation data was "disappointing", as there had been signs that retailers had been discounting their wares in the run-up to Christmas.
"Next month is utility bills, the month after that is VAT, it's all one-way traffic at the moment," Clarke added.
Scott Corfe, economist at the Centre for Economics and Business Research, warned that 2011 will be a very tough year for many households, even if the UK economy keeps growing.
"Both ourselves and the Office for Budget Responsibility (OBR) foresee inflation outstripping average earnings growth next year, which would entail an erosion of household spending power," said Corfe.
"Consumers this year appear to have reduced their propensity to save to maintain their living standards, and there is limited potential for them to do the same next year," he added.
Today's inflation data has also dampened expectations that the Bank might launch new measures to stimulate the economy in 2011.
Source: http://www.guardian.co.uk/business/2010/dec/14/inflation-rises-to-3-point-3-percent-november
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