18th November 2014
Consumer price inflation edged up from its five-year low of 1.2% in September to 1.3% in October according to official numbers but experts believe it could still dip below 1% in the coming months.
Despite the rise in the cost of living the still weak inflationary environment was reinforced by producer output and input prices continuing to fall in October.
Howard Archer chief UK & European economist at IHS Insight said: “Consumer price inflation edged up in October primarily because petrol prices fell even more in October 2013 (by 4.9p/litre) than they did this October (by 2.5p/litre). Meanwhile, the recent downward trend in food prices stabilised in October.”
But given the current weakness of oil prices, the ongoing supermarket pricing battle and soft import prices, Archer believes consumer price inflation could very well dip below 1% in the near term. “We expect inflation to be largely limited to a 1.0-1.5% range through 2015 before starting to gradually firm at the end of next year,” he added.
Ben Brettell, senior economist at Hargreaves Lansdown added: “The outlook for inflation remains weak. The Bank of England said last week that CPI inflation was likely to fall below 1%in the coming months, meaning Mark Carney would once again have to write a letter to George Osborne explaining why inflation has deviated from the 2% target by more than one percentage point.”
Brettell highlighted that Bank of England chief economist Andy Haldane said in a speech yesterday that he is watching UK inflation expectations “like a dove” – a clear indication that he expects weak inflation to allow the Bank to maintain its ultra-low interest rate policy for some time.
He said: “The exceptionally weak economic performance of the euro zone – our largest trading partner – remains a severe threat, while data released this week showed that Shinzo Abe’s radical reforms have failed to prevent the Japanese economy slipping back into recession.
“Given these threats, and the absence of inflationary pressure, it is difficult to see why the Bank of England would consider raising interest rates at present. I expect them to remain on hold until late 2015 and perhaps beyond.”