UK consumer inflation hits 3.1pc ahead of Bank of England meeting
UK consumer price inflation has risen so high that Bank of England governor Mark Carney will have to write a letter to the Chancellor explaining why and what he intends to do about it.
November's consumer price index was 3.1% higher year on year, the Office for National Statistics revealed on Tuesday, the highest rate since March 2012 and up from the 3% at which it has been for the previous two months and at which it was expected to remain for at least another month.
Annual CPI growth was lifted by a 0.3% month-on-month increase in November, which was up from the 0.1% rise in October and higher than the 0.2% consensus forecast.
Core CPI, which excluded more volatile prices such as for fuel and food, stayed at 2.7%, as economists had predicted.
CPIH, the ONS's preferred measure of inflation as it includes owner-occupiers' housing costs, was unmoved at 2.8% in November, though the market had expected it to nudge up to 2.9%.
The Bank of England’s 2% target for inflation has been exceeded for the last 10 months and if the headline rate moves more than 1% higher or lower, the governor is obliged to write a formal letter to the Chancellor. Carney's letter, which will be published in February, will be his first since October 2016 when inflation was a below-target 0.9%.
Upward pressure on CP came from competition in the airline industry as air fares fell by less than they did last year, while there was also some price pressure in household services, recreation and culture, food and drink, as well as restaurants and hotels.
Rising oil prices saw producer input price inflation pick up to 7.3% in November from 4.8% in October, while output price inflation only edged up to 3% from 2.8%.
"UK inflation rose to a near six-year high in November, and chances are that it could rise further before starting to ease again later in 2018," said economist Chris Williamson at IHS Markit, pointing to recent increase in the oil price and industrial survey data.
He said the increase will fuel some expectations that interest rates could soon rise again. "However, with the inflation rate being pushed up predominantly by the twin forces of higher oil prices and the weak exchange rate, the likelihood is that the rate will soon start to cool again as these pressures abate. Instead of focusing on the current inflation rate, the most important trigger for higher interest rates will be wage growth, which has so far remained stubbornly anaemic, meaning the attention now shifts to tomorrow’s labour market data."
Paul Hollingsworth at Capital Economics said while the 3.1% CPI outturn was a little higher than the forecast from the BoE's Monetary Policy Committee of 3%, October’s figure was being 0.2 percentage points below its forecast, so "this is unlikely to worry the Committee".
While the recent rise in oil prices has pushed up firms’ costs, he pointed out that this is still much lower than the close to 20% rates seen in early 2017. "All in all, there is little here to suggest that the MPC needs to raise interest rates again quickly to stamp out inflationary pressures (the MPC’s next policy decision is Thursday). Indeed, we think that CPI inflation has probably now peaked. And tomorrow’s wage growth figures are likely to indicate that underlying cost pressures remain subdued too."