UK Inflation Turns Positive

CPI Inflation last month was negative, at -0.1%, and has been floating around the zero mark since the beginning of the year, only exceeding 0.1% in January, when it was at 0.3%. The news of positive inflation this month will please analysts, some of whom had not been expecting a rise above zero until January 2016, or December at the earliest.

CPI stands for Consumer Price Index, which tracks the cost of an average ëmarket basket ‘ of goods, including clothing, food and tobacco. Sharply falling oil prices (Brent crude oil has fallen significantly to $40 per barrel since 2014) have been considered largely responsible for the low inflation that we have experienced over the last year. Clothing prices have also fallen ñ by a record amount from October to November ñ putting something of a lid on inflation. Increases in costs for transport, tobacco and alcohol offset falling clothing and oil prices to make for the rise this month.

It was not just CPI inflation that grew in November; the RPI (Retail Price Index) also grew from 0.7% to 1.1%. The RPI takes into account things like housing costs (including mortgage interest) that are excluded from the CPI.

While inflation has increased, it is still low; significantly lower than the government ‘s current target of 2%.

Chris Williams, chief economist at Markit, said: “UK inflation remained largely absent in November, and looks set to remain weaker for longer than forecasters have recently been expecting.” He, like most, cited “falling prices for oil and other commodities” as being largely responsible, and “driv ing down companies ‘ costs.”

The Bank of England have said that they do not expect to see CPI inflation at 1% or higher until at least the third quarter of 2016. This follows their most recent announcement that they will be keeping interest rates at 0.5%, following what is now an almost seven year trend. Most recently, the Monetary Policy Committee voted to maintain interest rates at this low level by a majority of 8-1. This marks the 81st consecutive meeting that has a resulted in a vote to keep rates at 0.5%.

The IMF recently reported that the UK economy is currently in fairly good shape, and is “very strong”. In the UK, they reported that falling unemployment (and growing employment), along with fiscal deficit reduction and various other factors have worked to cause economic growth to outstrip many other major European economies.

They did point out though that the domestic economy is still not without risks, with factors like the trade deficit having adverse effects on incoming cash flow.

Chrsitine Lagarde at the IMF also warned (in an interview with the BBC) of consequences should the UK leave the EU, saying that if we do, “trade would be harder, tariffs would be higher, and the financial fluidity within the European Union would not be as good as it is at the moment.”

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