UK Inflation Growth Weaker Than Expected

Consumer price inflation rose less than expected in January, but edged farther above the Bank of England’s 2 per cent target as higher food and petrol prices took effect, official data showed on Tuesday., Financial Times 2/12/2008 6:24:16 AM

The Office for National Statistics said CPI inflation increased from 2.1 per cent in December to 2.2 per cent last month, below analysts’ average forecast of a rise to 2.3 per cent.

The relatively mild figures will offer some reassurance to policymakers on the monetary policy committee, who last week stressed the need to balance the risk of slowing growth against that of inflation remaining above target.

Most of January’s increase was due to higher food prices, especially for fresh fruit, and petrol prices reaching an average of 103.9 pence a litre. But the impact was offset by heavier discounts on clothes and footwear, suggesting that retailers are having to absorb cost increases rather than passing them on to consumers.

Economists agree that inflation is likely to rise further above target over coming months, reflecting rising gas and electricity prices, and a sixteen year high in factory gate inflation that may partly feed through to consumers.

The MPC is also worried that higher expectations of inflation could affect behaviour of companies setting prices and employees negotiating pay. The committee is likely to raise its forecasts for short-term inflation in this week’s quarterly Inflation Report.

On the retail prices index, often used as a reference point for wage bargaining, inflation rose from 4 per cent in December to 4.1 per cent last month, in line with expectations.

UK Inflation Growth Weaker Than Expected