Inflation jumps to its highest level in nearly 6 years, hitting 3.1%

A shopper pushes a trolley in a supermarket in London, Britain April 11, 2017. British inflation shot past the Bank of England's 2 percent target last month, potentially adding to uneasiness among some officials at the central bank about keeping interest rates near zero. Consumer prices rose by a stronger-than-expected 2.3 percent, the biggest annual increase in nearly three-and-a-half years, pushed up by an increase in global oil prices and the impact of the Brexit vote on sterling.

REUTERS/Neil Hall

• Inflation jumps to its highest level since March 2012, as Brexit related price increases continue.

• Economists had predicted that inflation would remain flat at 3%, but it rose to 3.1%.

• The sharp fall in the value of the pound following the UK's vote to leave the EU last year has raised the cost of imports.

• Bank of England Governor Mark Carney must now write a letter to Chancellor Philip Hammond.

LONDON — Inflation climbed to another fresh high in November, coming close to its highest level in six years, as the impact of Brexit continues to hit the price of goods in the UK.

The Office for National Statistics said on Tuesday that the UK's Consumer Prices Index (CPI) inflation rate — the key measure of inflation — was 3.1% in November, above consensus estimates, and a little higher than the 3% seen for the three previous months.

CPI measures the weighted average of prices of a basket of goods and services, such as food, transportation, and medical care.

November's reading marks the highest rate of consumer price inflation since March 2012, when prices rose an average 3.5%.

CPIH, a measure which includes costs associated with maintaining a home — and which the ONS cites as a more useful indicator of living costs than CPI — was 2.8% in the month, unchanged from October's reading.

"CPI inflation edged above 3 per cent for the first time in nearly six years with the price of computer games rising and air fares falling more slowly than this time last year," the ONS' Head of Inflation Mike Prestwood said in a statement.

"These upward pressures were partly offset by falling costs of computer equipment."

"The prices of raw materials and goods leaving factories continued to increase as oil and petrol prices continued to rise," he said.

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Tuesday's data means that Mark Carney, the Bank of England governor must write a letter to Chancellor Philip Hammond to explain why inflation is more than one percentage point away from the 2% target the bank is mandated to acheive for the UK by the Treasury.

The chart below shows Tuesday's data as part of the longer term trend surrounding inflation:

Screen Shot 2017 12 12 at 09.37.55

ONS

The sharp fall in the value of the pound following the UK's vote to leave the EU last year has raised the cost of imports and pushed up the rate of inflation. Most major forecasters believe that inflation's peak is likely to be somewhere around the mark reached in the latest data.

Pantheon Macroeconomics' Samuel Tombs points out that November's rising inflation "was driven by a 0.06 percentage point increase in the contribution to the headline rate from airline fares inflation."

"The usual sharp month-to-month fall in plane ticket prices in November depressed the index by much less than in November 2016, because the weight of airline fares in the CPI has declined to 5%, from 8% last year."

Inflation's impact on the British economy is being exacerbated by the fact that real wages are actually growing more slowly than prices are rising, meaning that the average Brit is actually seeing the amount of money they have to spend decrease.

The ONS' latest wage growth numbers will be released on Wednesday, helping to create a fuller picture of just how intense the squeeze on Britain's consumers is right now.

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