Inflation takes wing as shops push up prices

Inflation surged to its highest levels for more than two years last month as retailers tried to force through price rises against the background of a strong economy that recorded the biggest monthly fall in unemployment for six years.

But the news disappointed financial markets and the higher mortgage rates to be announced today added fears that inflation would climb above December's 2.9 per cent.

The figures pointed to the need for more interest rate increases, according to most analysts in the City. They believe the Bank of England will raise base rates by another 1/2 percentage point by April.

Retail prices rose 0.5 per cent in December, taking the year-on-year rate of inflation to 2.9 per cent from 2.6 per cent in November. Excluding mortgage interest payments, the inflation rate rose from 2.3 per cent to 2.5 per cent. Both rises exceeded City expectations.

Budget increases in excise duties partly explained the increase in prices during the month, but not the year-on-year jump, as there was a similar effect last December.

There were, in addition, sharp rises in food prices, despite the pre-Christmas turkey price war. Prices for household goods and personal goods and services also increased unexpectedly. Higher mortgage rates will add to the headline retail prices index from January.

Adam Cole, UK economist at James Capel, said: "This is the first hint that retailers are managing to make price increases stick. If they succeed there is significant scope for pent-up increases to come through."

There was some dissent from this view. Steven Bell, Morgan Grenfell's chief economist, thought last month's inflation figure simply reflected new stocks reaching the shops. He said all the anecdotal evidence contradicted the notion that retailers would be able to achieve lasting price rises. The British Chambers of Commerce agreed that there was still downward pressure on retail prices.

Figures on average earnings, also released yesterday, show their underlying growth in the 12 months to November steady at 3.75 per cent, after October's increase was revised down from 4 per cent. Settlements for the coming year continued to rise during 1994, however.

Steady earnings growth, combined with productivity growth of 6.2 per cent in the year to November, meant manufacturers' unit costs fell 1.3 per cent in the three months to November. That was a smaller fall in costs than in the previous few months.

The near-record drop in unemployment was as big a surprise as the jump in inflation. Joblessness fell for the 11th successive month, to 2.414m in December. The unemployment rate of 8.6 per cent was the lowest since August 1991.

The latest quarterly Labour Force Survey showed a rise in employment of 115,000 between the summer and autumn (September to November). Of this increase, 102,000 jobs went to men and 13,000 to women. The number of full-time jobs rose by 127,000, while thenumber of part-time jobs fell by 11,000.

Robert Barrie, UK economist at BZW, said: "The economy is growing quickly and this is translating into jobs."

The Public Sector Borrowing Requirement fell to £700m in December from £3.5bn the previous month. Although debt interest payments are running 17 per cent higher this financial year than last, departmental spending is more subdued. This is due partly to lower social security payments as joblessness falls.

Start your day with The Independent, sign up for daily news emails
Barn owls are among species that could be affected
charity appeal
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy as ECB finally wield the axe
Arts and Entertainment
a clockwork orange, stanley kubrick
news... you won't believe how bad their skills were
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas