LONDON (Reuters) - Consumer price inflation eased more than expected in October driven by a slowdown in food, transport and petrol prices, the Office for National Statistics said on Tuesday.
However, inflation remains more than double the Bank of England’s 2 percent target and therefore Governor Mervyn King will have to write an explanatory letter to finance minister George Osborne.
- Biggest fall in food and non-alcoholic beverages prices for a month of October since 1996
- Highest annual rate of core CPI since April 2011
- Highest annual rate of housing, water, electricity, gas and other fuels inflation since February 2009
- The ONS said the price of electricity, gas and other fuels rose 19.9 percent on the year, the highest rate since February 2009.
“October’s drop in UK inflation is welcome news for the MPC ahead of tomorrow’s Inflation Report and, fingers crossed, should signal that we have finally passed the peak in inflation.”
“Admittedly, inflation will remain significantly above its target for much of this year - note that today’s figures mean that Mervyn King has had to write another explanatory letter to the Chancellor (published at 10.30). Nonetheless, as energy and VAT effects fade and the weakening economy bears down on underlying price pressures, we think that inflation could be below 4% by February and below 3% by August.”
“ Indeed, tomorrow’s Inflation Report should signal that the MPC’s main problem will be avoiding undershooting the 2% target at the policy horizon.”
“October should mark the start of an extended substantial downward trend in inflation. The Bank of England will certainly be hoping that this is the case, as will the government. And consumers will be particularly hoping that consumer price inflation will now head down rapidly, thereby easing the serious squeeze on their purchasing power.”
“With consumer price inflation finally heading downwards and looking set to fall particularly sharply during the first half of 2012, it will become less awkward credibility wise for the Bank of England to undertake further stimulative action to boost the struggling economy.”
“Of course, the Bank of England has been arguing for some time that consumer price inflation will fall back sharply once temporary upward pressures wane, but it will nevertheless be pleased to see the process apparently finally get underway.”
“Slightly down on the month, but the big picture is that inflation will fall back quite dramatically next year. And really the MPC is unlikely to take too much comfort from these numbers until it sees actual inflation fall next year. Either way, the focus is on GDP growth and if growth falters then the MPC will respond.”
“A little bit better on food I think is the main story. It’s good news and it should help to reinforce the Bank of England’s conviction that inflation has peaked. I think that is correct. However, I think the emphasis tomorrow in the inflation report will be on the deepening gloom from the damage the eurozone crisis is to doing to our economy and growth prospects. Lower inflation gives the Bank leeway to do more QE.”