Inflation expected to rise as energy suppliers put up prices

Inflation is forecast to have inched up in October as energy companies up their prices ahead of next year’s default tariff cap.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that Consumer Prices Index (CPI) inflation rose to 2.5% in October.

That is compared with 2.4% in September.

The rise is expected to be driven by energy following price increases last month from utilities firms British Gas and Scottish Power in the latest round of tariff hikes.

The Government also increased its safeguard tariff by 4.3% at the start of the period.

Economists at Pantheon Macroeconomics estimate that electricity and natural gas CPIs were up by 1.7% and 1.8% month on month respectively.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the boost to inflation would only be temporary and predicted CPI inflation will fall sharply in the coming months.

“Energy’s contribution to inflation will fall by 0.20pp in January, when Ofgem introduces its cap on Standard Variable Tariffs, and by a further 0.34pp over the next 12 months, if motor fuel prices hold steady,” he said.

He added the Bank of England’s Monetary Policy Committee’s (MPC) prediction for inflation to average at 2.2% next year looks too high, given likely declines in import prices and energy costs.

The Bank has signalled it is likely interest rates – currently at 0.75% – will need to rise by around a quarter point a year to bring inflation back to its 2% target.

Food inflation, which cooled in September, is expected to hold steady in October.

On Tuesday the latest data from Kantar Worldpanel showed grocery inflation was at 1.8% for the 12 weeks to November 4, edging down from 2%.

This follows a year of high food price inflation after a weaker pound put pressure on farmers and manufacturers.

Inflation in the import-sensitive core goods sector is expected to decline to 1.1% versus 1.2% in September, following a rapid import price decline over the last nine months.

Education inflation is on track to decline, after the limit on undergraduate fees for UK and EU students increased by £250 to £9,250 per year in October 2017.

No changes have since been announced, though the unregulated fees on graduate courses and non-EU student fees for undergraduate degrees could push up the sector’s CPI.

Read Full Story

FROM OUR PARTNERS