Inflation means inflation with post-Brexit price rises

By Euronews

Published on 18/10/2016 - 13:37

Inflation in Britain jumped in September, and it was mostly more expensive clothes and costlier fuel which pushed it up, rather than the weaker pound.

Consumer prices in Britain jumped in September, and it was mostly more expensive clothes and costlier fuel which pushed up inflation, rather than the weaker pound.

The Consumer Prices Index – which is based on comparisons of more than 700 items – hit an almost two year high being 1.0 percent up on September last year.

Economists said September’s rise was likely to be just the start of a much broader increase, further fuelled by the plunging value of the pound against other currencies following the Brexit vote for the UK to leave the European Union.

The weaker pound is pushing up the cost of imports.

1.0% rise in #CPI in the year to September 2016, up from 0.6% in August https://t.co/we6uN9gu8L #inflation
— ONS (@ONS) October 18, 2016

“With wage growth more or less steady, the rise in inflation over the last year has already taken about a percentage point off real income growth,” HSBC economist Liz Martins said.

Consumer prices were already beginning to trend up, having hit 0.5 percent in June and 0.6 percent in July and August, but the surge to 1.0 percent was the sharpest month-on-month rise in more than two years.

The Resolution Foundation think tank warned that Britons were likely to suffer a return to falling wages in real terms, something which blighted the UK economy in the years following the financial crisis until late 2014.

#UK #inflation hits two-year high as companies pass higher costs on to consumers. Here's our comment: https://t.co/reqyaskzaC
— Markit Economics (@MarkitEconomics) October 18, 2016

Bank of England Governor Mark Carney expects inflation to keep rising, to levels the UK central bank is not comfortable with, but it will allow that to happen to stimulate economic growth and employment.

Carney also conceded that higher inflation makes things “difficult” for people on low wages.

Who will rising inflation hurt most? The poor. Unless govt changes course on the plan to freeze working-age benefits in cash terms pic.twitter.com/eIyOk33hTz
— Sarah O'Connor (@sarahoconnor_) October 18, 2016

The inflation data will further dampen expectations that the Bank of England will cut interest rates again this year.

“The bigger-than-expected drop in sterling has done a lot of the work for the Bank of England,” said Berenberg Bank economist Kallum Pickering, adding that he only expected a rate cut if economic conditions deteriorate.