October 18, 2011 / 8:51 AM / 8 years ago

Instant view - Inflation at three-year high in September

LONDON (Reuters) - Inflation in Britain hit a three-year high in September driven by soaring gas and electricity bills, the Office for National Statistics said on Tuesday, adding to the severe squeeze on Britons’ living standards as wages have failed to keep up with rising prices.

The jump highlights the risk to the Bank of England’s move to revive the faltering economic recovery with a fresh dose of quantitative easing.

RPI %YY 5.6 5.2 5.5

RPI-X % YY 5.7 5.3 5.6

KEY POINTS

- Highest annual rate of CPI inflation since Sept 2008, has never been higher since the introduction of CPI measure in Jan 1997.

- Highest annual rate of RPI inflation since June 1991.

ANALYST COMMENTS

ROSS WALKER, RBS “Even after Spencer Dale’s comments, 5.2 percent is an upside surprise. Most of the overshoot was due to food and energy. We always knew there were risks around that. A lot more seems to have come through than we expected: food price inflation surprised us. The BRC shop price data suggested inflation was broadly flat there.

“The core inflation figure is also higher, and looks uncomfortably high given we have this ongoing squeeze on household incomes. But do they (the Bank) care? They probably won’t have seen these numbers before the October decision, but I’m not sure it would have changed their decision.

“I’m not at all sure this prompts any rethink. Their analysis is the outlook for the economy is significantly weaker than their last forecasts and that influences future inflation.”

JENS LARSEN, RBC

“I wasn’t surprised. The big question is how quickly inflation is going to come down. I would have thought inflation will be coming off in the New Year. In the next couple of months I expect inflation to be flat at this kind of level.”

“Over the past few months there have been pretty consistent indicators of underlying inflationary pressure. The MPC has argued that there are risks of deflation, and that’s quite hard to see in the data.”

JAMES KNIGHTLEY, ING “The hike in utility bills is the main reason, but there were also substantial increases in communication prices. We could see inflation rise further in October, up to 5.4 percent or so, but thereafter it should all sharply.

“The VAT hike to 20 percent earlier this year will all out of the annual comparison from January, while the weak growth environment means suggests that rising inventory levels will encourage price discounting from corporates. Furthermore, the steep falls in commodity prices should also add to downward pressure on inflation over the next year.

“Given the Bank has already started its second round of quantitative easing today’s CPI release is unlikely to have much market impact. Of more interest will be Bank Governor King’s speech to the Institute of Directors this evening at which he will presumably outline why the Bank went down the QE2 route and what the prospects are or further stimulus.”

ALAN CLARKE, SCOTIA CAPITAL

“I thought the consensus was too low. These numbers are completely as expected. We knew that utility prices were going to add 0.5 percent to inflation. This is no surprise whatsoever.

“What is surprising though is that core inflation has picked up. There’s misery on the high street, the economy’s on the verge of recession, but retailers are managing to raise prices. That’s a surprise, but the headline ticking up because of energy isn’t.

“The implications for monetary policy are> absolutely zero. I think quantitative easing is in the pipeline, this won’t change anything at all.”

UK Economics Desk

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