Food and clothing drive inflation even higher

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The Independent Online

The recent spike in world crop prices has reached the shops and pushed inflation well above the official target once again.

The Office for National Statistics reported yesterday that prices rose by 3.3 per cent in the year to November, from 3.2 per cent in October, on the CPI measure. It is the 11th month in which inflation has been at 3 per cent or more, and thus more than 1 percentage point above the official 2 per cent target.

On the more traditional RPI measure, still used for wage bargainingalthough being phased out for many pensions and benefits, the rate stands at 4.7 per cent, up from 4.5 per cent in October. The higher RPI rate reflects the inclusion of housing costs.

Overall, the pattern of price rises will tend to hit pensioners and the poor hardest.

The largest contributions to inflation came from food and clothing. The rapid rise in the cost of wheat and cotton seen this year on world markets due to unfavourable weather and strong Chinese demand is now making its presence felt on the British high street.

Food prices rose 1.6 per cent in November alone; on the RPI measure that is the second biggest jump in food prices from October to November since 1976. Seasonality and poor weather conditions seem to be responsible for much of the rise. Increases in cereal prices also drive up the price of meat and poultry – up 1 per cent on the month – through feedstuff costs. Fruit was up 7.5 per cent in November alone. Therebound in the price of oil has alsoinflated food transport costs.

Although modest in November, rapid petrol price rises in December look set to push inflation higher when they are published in January; this time last year the price of fuel was rising relatively slowly.

In a "what not to wear" aside, the ONS said that within the 2 per cent rise in the price of clothing for the month, men's casual jackets, short-sleeved shirts, women's formal jackets, "strappy" tops and training shoes showedexceptionally large price rises.

Elsewhere, kitchen units and whitegoods such as washing machines have also shown upward movement. Part of this may be a pre-emptive retail response to the planned rise in VAT to 20 per cent in January. By raising prices in advance of the increase, many shops will be able to then reduce the base price of goods after the New Year and claim they have "paid the VAT" or otherwise absorbed the impact of the new rate.

While tough for consumers, the Bank of England will be relieved that underlying measures of inflation are muted, easing the pressure to raise interest rates. Excluding VAT and duty rises, inflation stayed flat at 1.6 per cent. So-called "core" inflation, which strips out volatile items such as food and fuel, was also flat, at 2.7 per cent. The Bank forecasts that inflation will return to the 2 per cent target in about spring 2012, having peaked at 3.5 per cent or so.