UK Inflation reaches 3.0% in September 2017
In its latest inflation report, the Office for National Statistics (ONS) has confirmed that the Consumer Prices Index (CPI) 12-month rate reached 3.0% in September 2017, up from 2.9% in August 2017. When owner occupiers' housing costs are included in the adjusted CPIH measure, the 12-month inflation rate reached 2.8% in September 2017, up from 2.7% in August 2017, marking a five-year high.
Consumer price inflation is the rate at which the prices of goods and services bought by households rise or fall. The most common method for calculating 12-month inflation is to compare the price of a basket of goods and services today with the price of the same basket 12 months ago. The price differential provides the most popular figure for the country's rate of inflation.
Figures released for September 2017 report price increases in all broad categories. The ONS reports that the rate of 2.6% for recreation and culture is the highest since January 2010, whilst the rate of 3.1% for food and non-alcoholic beverages is the highest since October 2013.
The UK has fallen victim to inflationary pressures since the decision to leave the European Union in June 2016 that led to the deterioration in the value of sterling. This has led to an increase in the price of imported goods, which has gradually fed into household prices as various short-term currency business protections have expired. Inflation here in the UK is higher than that of most other EU countries, particularly the larger Western nations and this is being closed monitored by the Bank of England and its Monetary Policy Committee (MPC).
The MPC is tasked with maintaining inflation around a 2.0% target in a manner that supports both economic growth and employment. Should inflation breach 3.1%, the governor of the Bank of England, Mark Carney, will be required to write a letter to the chancellor to explain the divergence from the central bank’s 2 per cent inflation target.
Minutes from the September MPC meeting explicitly outlined that a rate rise could be due in the coming months. Financial markets are now betting that the emergency rate cut enacted in August 2016 following the Brexit vote will be reversed in November's meeting, taking the bank rate back to 0.50%. Mark Carney did nothing to dispel such expectations at the Treasury select committee indicating that the real effects of the fall in the value of sterling since the Brexit vote could take up to 3 years to fully work its way through to the economy.
The MPC next meets in November 2017. We will continue to keep you abreast of pertinent news between now and then.