Inflation jump threatens recovery

October's hike in CPI to 2.7 per cent squeezes incomes and reduces Bank's policy leeway

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 come in at only 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 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," said Simon Wells, economist at HSBC.

Analysts also said that higher prices would restrict the ability for the Bank of England's Monetary Policy Committee to increase monetary stimulus.

"Barring a major downside economic risk, the profile of rising inflation looks set to dissuade members from backing more asset purchases for the foreseeable future," said Philip Shaw of Investec.

The Bank of England will today release its latest Inflation Report, which is expected to show a higher profile of inflation than it laid out three months ago. But some analysts said there is good reason to believe inflation, which peaked at 5.2 per cent in September 2011, will continue its downward trend after passing this latest hump.

"Price pressures at the start of the inflation pipeline remain fairly weak. Output prices rose by just 0.1 per cent on the previous month in October. We still think that the weakness of economic activity will bring inflation down again in time, potentially to a very low rate," said Samuel Tombs of Capital Economics.

The Government described the figures as "disappointing" but stressed it has acted to relieve the squeeze on living standards.

"The Government has taken action to help people with the cost of living, including freezing fuel duty and council tax and taking two million people out of income tax altogether," a Treasury spokesperson said.

But Labour accused the Government of being responsible for the rise.

The shadow Treasury minister Catherine McKinnell said:"Instead of easing the squeeze, the Government is adding to the cost of living crisis for people on low and middle incomes.

"Conservative and Lib Dem MPs last night voted against Labour's call for January's 3p fuel duty rise to be postponed. And in the coming months millions of families and pensioners on low and middle incomes face rising energy bills, cuts to child benefit and the granny tax, while 8,000 millionaires get a tax cut."

Inflation peaked at 5.2 per cent in September 2011.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech

Board creates magnetic field to achieve lift

News
There have been various incidents of social media users inadvertently flouting the law
news

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London