The inflation figures published today for the twelve months to November 2009 could signal the start of a short-term spike in price inflation.
The Consumer Price Index (CPI) measure of price inflation was slightly higher than expected, with an annual rate of of 1.9%. This is up from 1.5% in October.
The Retail Prices Index (RPI) measure of price inflation, which includes mortgage and housing costs, returned positive territory, at 0.3% for the year to November compared with -0.8% the previous month.
Looking at what caused this rise in inflation, the Office for National Statistics (ONS) commented that “…the largest upward pressure affecting the change in the CPI annual rate came from transport,”. Within this category, the pressure came mainly from the cost of fuel and lubricants.
With the rate of Value Added Tax (VAT) now confirmed as returning to 17.5% at the start of 2010, we expected to see further increases to both CPI and RPI, at least in the short term.
The CPI target for the Bank of England is 3%, so a rise to 1.9% is unlikely to encourage the Monetary Policy Committee to ramp up interest rates. In fact, we still believe it is unlikely that the Bank Rate will go above 0.5% for the first half of 2010, even if CPI goes above 3% in the first few months of the year as has been widely predicted.
