November's unexpectedly large spike in inflation threatens to undermine the recovery and tie the hands of the Bank of England to do anything about it, analysts warned yesterday.
The Office for National Statistics (ONS) reported that the Consumer Prices Index of annual inflation rose to 2.7 per cent last month, up from 2.2 per cent in September, breaking a three-month run of declines in the cost of living.
The majority of the rise was a consequence of the Coalition's decision to raise the cap in university fees, which took effect this autumn. The costs of education services rose by 19.1 per cent as a result. Analysts knew that higher tuition fees, which rose from a maximum of £3,375 to £9,000, would be reflected in the cost of living this month, but the consensus was that the annual inflation rate would only come in at 2.4 per cent.
The ONS also reported contributions to the increase in the rate from clothing and footwear as well as food, and drink prices.
Core inflation, which strips out one-off items, rose from 2.1 per cent to 2.6 per cent.
And higher energy prices, following tariff hikes by several of the largest electricity firms, are also set to feed through to the index in coming months, which could push inflation above 3 per cent.
Most forecasters' expectations of growth in 2013 are based on the assumption of an end to the squeeze on household incomes, resulting from lower inflation. But if prices remain high, these calculations will be compromised. "With wage growth still around 2 per cent per year, inflation is outpacing it. This reduces real incomes and means the hard-pressed consumer is less likely to drive a recovery by increasing spending," Simon Wells, an economist at HSBC, said.
Some economists believe that inflation, which peaked at 5.2 per cent in September 2011, will continue on its downward trend after yesterday's bump.Reuse content