'Unexpected' rise in rate of UK inflation
'Unexpected' rise in rate of UK inflation
Tuesday 19th January 2010
Inflation in the UK has risen to its highest level in nine months following a record increase last month.The Office for National Statistics (ONS) announced today the Consumer Price Index (CPI) rose 0.6 per cent last month, increasing the annual rate from 1.9 per cent in November to 2.9 per cent.
The ONS said the inflation result was due to a "number of exceptional events that took place in December 2008"; those being the reduction in the standard rate of Value Added Tax (VAT) to 15 per cent from 17.5 per cent, sharp falls in the price of oil and pre-Christmas sales as a result of the economic downturn.
It said the events led to the CPI falling by 0.4 per cent between November and December 2008 (a record fall between these two months), with the increase between November and December 2009 of 0.6 per cent far more typical.
David Kuo, director at financial website The Motley Fool said: "The latest inflation numbers from the Office for National Statistics are worrying. The Consumer Prices Index rose from 1.9 per cent to 2.9 per cent and the Retail Prices Index jumped from 0.3 per cent to 2.4 per cent in December.
"However, today's surge in inflation is unlikely to be the last that we hear of rising prices. These are not statistical anomalies that we can casually wave away but represent a real dent in the purchasing power of the pound in our pockets.
"The return of VAT to 17.5 per cent this month following the pointless 2.5 per cent cut last year is likely to stoke inflation further. Consequently, the jump in inflation should be a wake-up call for all of us. We ignore it at our peril."
The ONS said in the year to December 2009, RPI annual inflation was 2.4 per cent, up from 0.3 per cent in November. The last time there was an increase in the 12-month rate greater than 2.1 per cent between two months was in June and July 1979 when the rate increased from 11.4 per cent to 15.6 per cent.
Howard Archer chief UK and European economist at IHS Global Insight commented following the ONS results: "The December inflation data are a very nasty shock. Even allowing for the unfavourable statistical distortions coming from sharply falling oil prices a year ago and the December 2008 VAT cut, the data will not go down at all well at the Bank of England.
"While the Bank of England has been expecting inflation to spike up, December's increase was clearly way more than the bank expected. In fact, consumer price inflation averaged 2.1 per cent in the fourth quarter of 2009 which was significantly above the 1.85 per cent level forecast by the Bank of England in the November quarterly inflation report."
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