Shock Inflation Rise!

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THE Consumer Prices Index (CPI) rate of inflation rose to 1.5 per cent in October, up from 1.1 per cent in September.

As well, the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose to -0.8 per cent, up from -1.4 per cent.

Food prices went up 2.2 per cent in the month compared to last year.

The Office for National Statistics (ONS) said that by far the largest upward pressure affecting the change in the CPI annual rate came from transport.

The largest upward effect within transport came from fuels and lubricants, where prices fell 0.7 per cent between September and October this year, but fell by a record for a September to October period of 6.1 per cent a year ago.

The large fall in 2008 was due to sharp falls in petrol and diesel prices, reflecting the falling price of crude oil in the latter half of 2008.

Within transport there were also large upward contributions from:

• The purchase of second-hand cars, where prices rose this year at their fastest ever rate (1.1 per cent) between September and October, but fell a year ago.

The annual inflation rate for second-hand cars in October was a record high at 13.2 per cent.

• Air transport, where overall fares increased by 1.5 per cent this year but fell significantly a year ago; in fact, the 6.2 per cent decrease in 2008 was a record fall between September and October.

There were further large upward pressures from:

• Recreation and culture, where prices rose between September and October this year after falling a year ago.

• Food and non-alcoholic beverages, mainly due to food, where, overall, prices increased by more than a year ago.

Within food, the largest upward effect came from meat, particularly pork products, with the next most significantly upward contributions coming from bread, cereals and vegetables.

• Communications, where prices rose between September and October this year by more than a year ago, mainly due to increases in land-line telephone charges.

In the year to October, RPI inflation fell by 0.8 per cent compared with a fall of 1.4 per cent in September.

The last time there was an increase in the annual inflation rate greater than 0.6 per cent was between July and August 1990.

The Monetary Policy Committee (MPC) of the Bank of England, which sets interest rates, has said inflation will rise again when the VAT rate is put back up to 17-and-a-half per cent on January 1st.

The Bank, which has already printed £200 billion in its quantitative easing (QE) programme, is under pressure to print even more.

‘Given the serious risks facing the UK economy and the dangers of a double-dip recession in 2010, it is important for the MPC to persevere with an aggressive QE programme, and to consider special measures aimed at boosting bank lending to businesses,’ said David Kern, chief economist at the British Chambers of Commerce yesterday.