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UK CPI inflation held at 2.7% as RPI creeps higher

by: Jenny Cosgrave
  • 15/01/2013
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UK CPI inflation held at 2.7% as RPI creeps higher
The UK's main inflation rate has remained at 2.7% for the third month in a row, broadly in line with economists’ expectations, despite steep rises in energy bills.

Official data from the Office for National Statistics (ONS) showed consumer prices index (CPI) inflation was unmoved in December despite expectations higher energy costs would push it up.

The ONS said rising energy prices were cancelled out by falling air fares, keeping a lid on CPI.

Retail prices index (RPI) inflation rose marginally from 3% to 3.1%.

CPI inflation has tumbled sharply from its three-year high above 5% back in 2011, but experts fear it will remain above target for some time as the impact of quantitative easing (QE) plays out.

The government has pumped £375bn worth of additional money into the economy so far, in an effort to stimulate growth, but fears are growing that inflation could start to climb sharply this year as the pound weakens.

Domestic price rises are also a factor. Five out of six of the main energy companies raised their energy tariffs in December, putting upward pressure on CPI.

The data means CPI inflation remains in excess of its 2% target.  Policymakers are beginning to broach the possibility of the threshold being scrapped or modified in future.

Incoming Bank of England governor Mark Carney suggested in December that it could be beneficial for central banks to target nominal GDP (a mixture of GDP and inflation rates) rather than simply focus on price stability.

Some economists have forecast that inflation could come closer to the 3% mark, which would trigger a letter from the Bank of England to the Treasury explaining why it had missed its 2% target by a percentage point.

Earlier this month the BoE’s Monetary Policy Committee voted in favour of keeping its benchmark interest rate at 0.5%, the lowest level in the bank’s 319-year history, and the size of the asset purchase programme.

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