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Higher Food Costs Add To Inflation Woes

(c) Sky News 2012

The main rate of inflation remained unchanged in November (Xetra: A0Z24E - news) as falling petrol prices failed to offset rises in many basic foodstuffs and home energy costs.

The Office for National Statistics calculated that the CPI (Other OTC: CPIC - news) measure remained at an annual rate of 2.7% in November.

Many economists had expected the figure to fall back slightly ahead of further increases in the rate next month as many rises in household energy bills filter into the statistics.

The ONS said the first increase in bills to take effect, by supplier SSE (LSE: SSE.L - news) , was included in November's figures.

But with hikes by the other five main energy providers set to come into force, analysts think CPI inflation will peak at 3.5% by mid-2013.

Upward pressure from gas and electricity prices pushed housing and household services inflation up by 0.6%, the ONS said, while increases in the price of fruit, bread and cereals also added pressure to the CPI rate.

But a fall in the cost of transport was the biggest factor which kept the rate steady as petrol prices fell by 3p to £1.35 per litre on average while diesel dropped 1.5p to £1.42.

The RPI measure of inflation, which includes housing costs, fell to 3% in November from 3.2% in October as transport costs and mortgage interest payments fell.

In its quarterly forecasts revealed last month, the Bank of England expected inflation to remain significantly higher over the next 18 months than it had previously expected.

It was that factor which is thought to have prevented the bank adding to its bond purchase programme, known as quantitative easing, to boost money supply in the UK economy despite evidence of continuing sluggish growth.

Commenting on the figures, the TUC general secretary Brendan Barber said: "The stubbornness of inflation, combined with poor wage growth, is putting real pressure on people's finances in the run-up to Christmas.

"With the Office for Budget Responsibility not expecting real wage growth until 2014 and further cuts to in-work benefits due this April (Paris: FR0004037125 - news) , 2013 looks like being another tough year for working families.

"Today’s figures are also another reminder of how painful the forthcoming benefits uprating cap will be for low-income families."