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Inflation hits six year high as prices keep rising

Inflation hits six year high as prices keep rising

Consumer price inflation hit a near six-year high of 3.1% in November.

This means that the Bank of England governor will have to write to the chancellor to explain what he is doing in response, since CPI is more than a percentage point higher than the target 2%.

The rise from 3% in October was impacted mainly by transport, where prices rose by 0.1% between October and November, lifted by airfares.

The Office of National Statistics said that the headline change was due to a consistent number of small price increases across the economy however, rather than due to a small number of heavily weighted changes. 

It said: ‘The overall contribution comprised a range of small effects coming from areas such as other personal effects (for example, handbags), other financial services and jewellery, clocks and watches.’

Elsewhere, the retail prices index annual rate was down to 3.9% from 4% last month. Sterling edged higher against the dollar to trade at $1.34.

Lucy O’Carroll, chief economist at Aberdeen Standard Investments said: ‘This is slightly higher than expected and will prompt a letter from Bank of England governor Carney (pictured) to the chancellor, explaining why inflation has overshot its target by this margin and what the Bank will do about it.

‘It’s quite possible that inflation is now close to its peak. But some of the latest surveys suggest that service sector costs and prices are rising. Given how dominant services are in the economy, this could feed through to inflation overall.

‘That means that further interest rate rises are definitely not off the table. The Bank of England has a tricky tightrope to walk. Too much inflation could threaten the Bank’s credibility and therefore its grip on the economy.

But they need to keep consumer spending, the engine of the UK economy, chugging along too. If inflation keeps creeping up, or remains elevated, then the chances of the engine sputtering rise incrementally.’

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