Inflation rises to 1.2% in November
UK inflation – the measure of the increase in prices of a selected ‘basket of goods’ that includes items and services that are commonly bought by the average person in the UK (and is updated each year) – rose to 1.2% in November, 0.3% higher than October’s 0.9% number.
Today’s figure, which is taken from the Consumer Price Index (CPI) rate of inflation, has hit a 25-month high – although to put it in context, it’s still down on the Bank of England’s (BoE) 2% target for 2017.
The main drivers of the increase include rising clothing, fuel, hotel, and restaurant prices.
However, rising inflation – in particular food prices – is a major concern for over half of UK households in a post-Brexit Britain.
Tom Stevenson, investment director for personal investing at Fidelity International, says: “Higher inflation means the pound in your pocket won’t stretch as far and many will be thinking how they can make their money work harder. There is little evidence so far that rising inflation will translate into much higher interest rates, so anyone with savings still sitting in cash will struggle to generate real returns.”
Some experts believe inflation will climb ever higher as 2017 proceeds, but Ben Brettell, senior economist at Hargreaves Lansdown disagrees.
He says: “The longer-term picture is one of structurally low inflation – due in part to demographic reasons. The baby boomers are starting to retire and have already gone through their consumption phase – they have bought their houses, cars and consumer goods. The generation behind them is saddled with debt and struggling to get on the housing ladder. Workers don’t have the bargaining power over pay they once did, and wage growth looks set to be anaemic at best.”
The Retail Price Index (RPI), which unlike CPI does include housing costs, rose from 2% in October to 2.2% in November.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).