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Inflation jumps to 3.7% as commodity prices soar

by: IFAonline
  • 18/01/2011
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Inflation jumps to 3.7% as commodity prices soar
Inflation edged closer towards 4% in December as the rising cost of food and oil products continued to hit the price of goods and services.

The annual Consumer Price Index (CPI) rate has now reached an eight-month high at 3.7%, up from 3.3% in November.

Annual inflation as recorded by the retail prices index (RPI), including mortgage interest payments, stood at 4.8% in December up from 4.7% in November.

The figures are likely to increase calls for the Bank of England’s Monetary Policy Committee to up the base rate to combat the increasing inflationary pressures on the UK economy.

However, some analysts warn such a move would “choke off” the tentative recovery.

The recent VAT rise from 17.5% to 20% could further fuel inflation, which has now remained above the 2% target by one percentage point or more for 13 months.

The Bank of England’s governor, Mervyn King, had to write four letters to the chancellor last year as a result.

Air transport and rising petrol, diesel, gas and food prices are the most significant drivers of the increase, according to the Office for National Statistics (ONS).

Transport prices, overall, rose by 3.6%, the largest ever monthly increase on record. By far the largest upward effect came from air transport where fares rose by 41.8% (such an increase is not unusual for a November to December period).

Housing and household services prices, overall, rose by 1.4%, the largest ever increase for a November to December period.

The largest upward effect came from gas where average bills rose due to some of the major energy suppliers increasing their tariffs in December 2010.

Next largest was the impact from liquid fuels, where prices rose sharply by 2.8%, the largest increase for a November to December period since 1996, reflecting the increase in the price of oil.

The main downward pressures to inflation between November and December came from furniture and furnishings and clothing.

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