Rising prices impact inflation

THE UK inflation rate rose by 1% in September, up from 0.6% in August, according to latest figures from the Office for National Statistics.

The rate in September was the highest since November 2014, when it was also 1.0%.

The main upward contributors to change in the rate were rising prices for clothing, overnight hotel stays and motor fuels, and prices for gas, which were unchanged, having fallen a year ago.

These upward pressures were partially offset by a fall in air fares and food prices.

The Greater Birmingham Chambers of Commerce said the increase would do little to ease the concerns of firms worried about the volatility of exchange rates.

Henrietta Brealey, director of policy and strategic relationships at GBCC, said: “While costs for UK manufacturers again saw significant increases in September, increases in the Consumer Prices Index remain relatively low.

“The rise in costs for UK manufacturers can largely be attributed to the fall in the value of sterling seen since the EU referendum.

“That CPI remains so low – significantly below the Bank of England’s target of 2% –  suggests that increased costs for manufacturers and retailers importing products from abroad have yet to be passed on to consumers.”

She said the chamber’s own research through its Quarterly Business Report, indicated that businesses in the region were increasingly concerned about the impact of exchange rates.

Nevertheless, she said confidence and growth remained robust, with the majority of local firms expecting turnover and profitability to increase over the next 12 months.

CBI Head of Economic Analysis and Surveys, Anna Leach, said the rate was expected to rise because fuel prices were no longer falling.

“It’s still too soon for sterling’s recent depreciation to affect today’s inflation figures, however we do expect it to push up prices through the course of next year, which will hit the pound in people’s pockets,” she said.

“It is unlikely that today’s inflation rise will phase the Bank of England, who we still expect to cut the base rate in November, to support confidence and spending in the short-term.”

Martin Beck, senior economic advisor to the EY ITEM Club, said the rise was likely to herald the beginning of a steep upward trend – possibly above the Bank’s 2% target – early next year.

“The pickup was largely due to base effects, with last autumn seeing the peak of the drag from falling food, petrol and energy prices. However, there is evidence that inflationary pressures are also beginning to intensify. Petrol prices rose by 1.2p per litre on the month, while there are signs that core inflation is beginning to accelerate.,” he said.

“We calculate that on a seasonally adjusted basis, core inflation was up 0.7% quarter-on-quarter in Q3, the strongest outturn since the end of 2012.

“The pickup in core inflation is likely to have been heavily influenced by the pass-through of the depreciation of sterling that we have seen over the past year. These pressures are likely to intensify over the coming months, particularly as the impact of the post-referendum sterling slump begins to be felt.”

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