Inflation in surprise slip to 0.9% in October but rise looms

Inflation nudged down to 0.9% last month according to official figures - but they also signalled the prospect of much higher prices ahead.

The Office for National Statistics (ONS) said the surprise slip in the headline consumer measure, from 1% in September, was down to lower rates of cost growth in clothing and tuition fees compared with a year earlier.

But ONS figures also showed October saw the fastest rise in fuel and lubricant costs since April 2012 while the cost of goods leaving factories jumped by 2.1%.

Costs for raw materials and oil faced by producers rose at a record monthly pace.

Bank of England governor Mark Carney, speaking to MPs, said a rise in inflation was still coming thanks to the slump in the pound, while separate City updates from the retail sector also pointed to pressure driving up prices.

ONS head of inflation, Mike Prestwood, said: "After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well.

"However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops."

The official figures came in below economists' expectations and were released following warnings that the plunge in the value of the pound since the UK's vote to leave the EU would stoke consumer inflation after Christmas.

The Bank of England revised its forecast for inflation for 2017 higher earlier this month to 2.7%.

Mr Carney reiterated that view as he gave evidence to the Commons Treasury select committee shortly after the figures were released.

He said: "Inflation is going up. A pass through of a 20% fall in sterling is going to come and will build towards the end of this year and into 2017."

Scott Bowman, UK economist at Capital Economics, described October's inflation figure of 0.9% as a "temporary stumble".

He said: "We think inflation will peak at about 3.2% in the first half of 2018.

"This rise in inflation will eat into households' real incomes and lead to a slowdown in consumer spending growth.

"However, support from low interest rates, and a probable easing of the fiscal squeeze in next week's Autumn Statement , should ensure that spending growth doesn't slow too sharply."

Sterling headed lower against the US dollar and the euro on the back of the inflation figures as they were seen as easing pressure on the Bank of England to raise interest rates in order to keep the cost of living under control.

Separate data released on Tuesday showed a further easing in grocery deflation - running at an annual rate of -0.5% in the 12 weeks to 6 November, according to Kantar Worldpanel.

It suggested that while the supermarket price war was helping keep a lid on rising prices, cost pressures were growing on grocery chains.

Elsewhere, discount retailer B&M, chaired by former Tesco (Xetra: 852647 - news) boss Sir Terry Leahy, said the fall in sterling would affect the cost of imports from China and "result in a rise in costs of goods sold" next year.

Separately, Mr Kipling and Oxo maker Premier Foods (LSE: PFD.L - news) said it would seek to limit the impact of the pound's plunge on consumer prices using "a range of mitigating actions".