Hawks boosted as inflation rate climbs to 3.3 per cent

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The Independent Online

The headline and target measures of inflation rose unexpectedly in September. Increased petrol prices explained part of the increase, but prices were higher for a wide range of goods and services. The headline rate climbed to 3.3 per cent from 3.0 per cent.

The headline and target measures of inflation rose unexpectedly in September. Increased petrol prices explained part of the increase, but prices were higher for a wide range of goods and services. The headline rate climbed to 3.3 per cent from 3.0 per cent.

Underlying inflation, excluding mortgage interest payments, jumped to 2.2 per cent from 1.9 per cent in August. It, therefore, remained below the Government's 2.5 per cent target but it was the latest in a series of figures since last week's Monetary Policy Committee announcement of no change in interest rates to give the "hawks" fresh ammunition for a future rate rise.

The pick-up in inflation comes just ahead of the start of the pay bargaining season. The Engineering Employers' Federation warned yesterday that it was starting to grow concerned that the "relatively high" inflation rate and tight jobs market would put upward pressure on pay deals. This marked a change in tone from an industry group that had been urging the MPC not to tighten policy.

The EEF reported an increase in the average pay settlement in the industry to 3 per cent in September, up from 2.4 per cent in August. The pressures were greatest in the engineering and aerospace industries, and in the South of England it said.

One MPC member said yesterday that wages would be crucial for future interest rate decisions. Stephen Nickell, who voted for increases in July, August and September according to the minutes, said: "How long can the labour market go on getting tighter before we see serious upward pressure on wages? This is something we are watching very closely."

"With inflation figures moving in the wrong direction, and oil prices not by any means the only reason, the fragile minority on the MPC in favour of keeping rates on hold could crack," said John O'Sullivan, UK economist at Dresdner Kleinwort Benson.

According to yesterday's official figures, a petrol price rise amounting to 1.5p a litre for unleaded contributed just more than a third of the 0.3 point rise in the annual inflation rate. Collection of the data had been disrupted by the blockades, but the National Statistics Office said it was confident this had not affected the final figures.

The benchmark Brent oil price climbed through $31 a barrel in early trading yesterday, for the first time since last week's oil release from the US strategic reserve. The International Energy Agency said the market remained "nervous". With winter approaching, refineries were operating near capacity, pipelines were full and stocks remained extremely low.

Other significant upward contributions to September's inflation rise came in food, notably potatoes and related products such as crisps, household goods, where furniture prices had risen further after the summer sales this year, and leisure services, especially foreign holidays. All categories except housing increased, however, with even the price of personal computers displaying a rare monthly rise.

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