U.K. Inflation Holds Steady in September

The U.K.'s inflation rate held steady at more than one percentage point above the Bank of England's target for a ninth consecutive month in September, official data showed.

The annual inflation rate was 3.1% for the third month running, the Office for National Statistics said. On a month-to-month basis, the consumer price index was unchanged in September after rising 0.5% in August. The ONS said the core inflation rate, which strips out volatile prices for energy, food, alcohol and tobacco, eased to 2.7% in September from 2.8% in August.

The figures, which were in line with expectations, kept alive the debate among economists over whether the BOE should expand quantitative easing by resuming its bond-buying program to support the economic recovery.

The BOE is expected to keep its monetary policy extremely loose for many months to come in the face of aggressive fiscal tightening by the coalition government, a fragile recovery abroad, and strains in the banking sector. The BOE aims to keep inflation at 2%.

After dropping its key interest rate to a record low of 0.5% in March 2009, the central bank launched a £200 billion quantitative-easing program. Although the program was suspended in February, the minutes of its September policy meeting show some members saw an increased risk of having to reopen it.

But in a sign of divisions on the BOE's Monetary Policy Committee, rate-setter Adam Posen said in late September that he saw a "clear" case for making more asset purchases, while fellow member Andrew Sentance has been voting in favor of small interest-rate rises.

Although the headline inflation rate was steady, there were some marked movements in the various price categories. The ONS said the main upward contributions to the annual inflation rate came from clothing and footwear prices, which posted a record year-on-year rise, primarily due to women's clothing. Other upward pressures came from an increase in prices for meat and fruit, hotel accommodation, private rents, and the sharpest gain in prices for alcoholic beverages and tobacco for the August-to-September period since 2000.

Those pressures were offset by downward effects from transport, including prices for air transport, fuels and lubricants, and second-hand cars, the ONS said. Weaker prices for recreation and culture and communication also weighed.

The retail price index, an alternative measure of prices that is often used in wage settlements, rose 0.4% from the previous month in September and was 4.6% higher compared with the same period a year earlier. In August, the RPI increased 0.4% from the previous month and 4.7% from a year earlier.

U.K. Inflation Holds Steady in September

TradingEconomics.com, WSJ
10/31/2010 8:44:31 AM