Inflation edges closer to target
Inflation is still above the Bank of England’s medium-term target of 2.5 percent – as set by the Chancellor – but last month the rate of price increases eased marginally.
The latest figures from the ONS revealed that the rate of inflation fell from 2.9 percent in August to 2.8 percent in September, according to the RPIX measure, which excludes mortgage payments.
Smaller increases in clothes prices counteracted the upward pressure from seasonal foods, which have risen by more than during the same period last year because of the unusually hot summer.
A seasonal drop in travel costs also helped to stall the rate of inflation, with a specific index for air fares being included in the figures for the first time.
The slight decrease is in line with the City’s expectations, and has led analysts to suggest that the BoE can afford to delay its expected interest rate increase until next year because of the lack of inflationary pressure.
But the HICP international measure of inflation shows that the UK has the lowest level of inflation in the EU at just 1.4%. The difference between the two indices is the fact that the HICP does not include house prices.
The UK is expected to adopt the HICP by the end of the year, and will have to ensure that the discrepancy between the two rates is ironed out in order not to adversely effect interest rates.
