Petrol pushes inflation to 6-month high

A customer fuels her car with unleaded petrol at a Morrisons supermarket in Coalville, October 15, 2008.

LONDON (Reuters) - Consumer price inflation rose last month at its fastest annual pace since May, though the monetary policy implications are limited as the rise is largely due to sharp falls in oil prices a year ago.

Consumer prices increased by 1.9 percent in November, up from 1.5 percent in October and a five-year low of 1.1 percent in September, official figures showed on Tuesday -- broadly in line with analysts' expectations of a 1.8 percent rise.

The ONS said transport costs -- which are dominated by fuel -- added nearly 0.5 percentage points to the annual rate of inflation.

The increase is mostly because an 8.3 percent drop in transport costs between October and November 2008 has now fallen out of the annual inflation data, replaced instead by a 2.3 percent rise between October and November this year.

Markets had largely expected the rise in inflation, with little price reaction after the data, and the Bank of England has also said it expects a temporary spurt in inflation over the coming months, aided by the end of a 13-month reduction in value-added tax on January 1.

"November's consumer price figures will do little to ease recent concerns over the near-term inflation outlook, but we remain convinced that price pressures will remain subdued over the medium term," said Jonathan Loynes, economist at Capital Economics.

The Bank has said inflation could rise above 3 percent early next year, but it does not expect this rate to become entrenched because elevated unemployment and spare capacity are likely to persist while the economy recovers from recession. The central bank aims for inflation of 2 percent over the medium term.

"The fundamental economic issue is ... that we have a large output gap, and it may be that through next year we don't make very much progress on that. Therefore, inflation pressures on the whole are downward," BoE policymaker Kate Barker told Bloomberg in an interview on Tuesday.

Economists said they did not expect the data to affect the Bank's 200 billion pound quantitative easing policy, which will have completed its planned purchases by February but may not be unwound for many months after that.

"With fiscal policy set to be tightened aggressively in coming years we see inflation moving back below target in 2011, which will allow the Bank of England to tighten monetary policy relatively slowly," said James Knightley, economist at ING.

Inflation would have risen faster had it not been from 0.1 percentage points of downward pressure from food and soft drinks. Falls in the prices of cauliflowers, frozen chips, baked beans and tea and coffee offset higher prices for grapes, strawberries and bananas.

Petrol prices rose 2.9 pence per litre in November but fell 9.3 pence per litre in the same month a year ago, the ONS said.

Nonetheless, even excluding volatile components such as energy and food, inflation rose faster than expected. Core CPI increased at an annual 1.9 percent in November -- the highest since November 2008 -- from 1.8 percent in October.

The Retail Price Inflation price gauge, a broader measure which includes housing costs, rose an annual 0.3 percent, also slightly more than expected and the highest year-on-year pace of increase since December 2008.

RPI inflation has been negative for much of the past year.

(Editing by Victoria Main and Andy Bruce)