More expensive petrol and household goods push headline inflation rate up to 1.4%

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The Independent Online
HEADLINE INFLATION edged higher last month, returning to its highest since April, official figures showed yesterday. Underlying inflation remained unchanged at just below the Bank of England's target.

Although the prices of clothes and shoes fell at their fastest annual rate since May 1953, other components of the retail price index showed some upward pressure. Household goods surged in price during November, and services inflation continued to outpace goods inflation despite a small pick-up in the latter.

Additional upward pressure came from the strong rise in the price of petrol and the fact that last year's mortgage rate cuts dropped out of the year-on-year comparison.

Headline inflation rose to 1.4 per cent in November, from 1.2 per cent. The underlying rate, which excludes mortgage interest payments, was unchanged at 2.2 per cent.

The price of clothing and footwear rose 0.3 per cent last month, a smaller than usual increase for the time of year. Warm weather dented demand for clothes and boots and as a result, the annual inflation rate in this category declined to a 46-year low of minus 5.3 per cent.

Leisure goods, including many consumer electronics, dropped 0.3 per cent in price during the month, to a level 5 per cent lower than last year.

Offsetting this deflationary pressure, household goods prices jumped 1.1 per cent. "This could reflect the strength of the housing market. It is one area where retailers can get away with raising prices," said Ciarn Barr at Deutsche Bank.

Economists said the Bank of England would want to seeChristmas sales data before making a decision on interest rates. David Smith, economist at stockbroker Williams de Broe said: "If consumers go bananas, the Bank may raise interest rates but if not they may wait until February."

Fares and travel costs also rose, as they will again in January. And the price of leisure services was up 0.2 per cent, or 4.8 per cent year- on-year. This compares with goods price inflation of 0.5 per cent, up from 0.4 per cent in October.

Yesterday's figures showed no sign of higher producer price inflation being passed on at the retail level. "The gap between producer price and core retail price inflation is a testament to the competitive pressures in retailing," said John O'Sullivan at Greenwich NatWest. Analysts said the target inflation measure should stay comfortably under the target of 2.5 per cent for some time. Figures on unemployment and earnings this morning may give a clearer signal on the extent of inflationary pressures.

According to a report from the Employment Policy Institute, an independent think-tank, the stock of unfilled vacancies stands at 341,000, well above the peak reached in the late Eighties. It warns that the Government's aim of returning to full employment could trigger wage pressures.