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Inflation jumps in December

(SHARECAST) – Annual consumer price inflation (CPI) rose to 3.7 perent on an annualised basis in December as soaring commodity costs pushed up prices.

The rise from a rate of 3.3 percent in November was bigger than had been expected and is the latest in a series of data demonstrating the influence of rising commodity prices and other upward pressures.

The Office for National Statistics, which is responsible for compiling the data, said that higher air fares, food and fuels were among the biggest upward pressures on inflation. Gas tariff hikes announced by the energy suppliers last year also made a large contribution.

Last week, figures showed a bigger than expected rise in factory gate inflation in December. Howard Archer, chief UK and European economist at the analyst group IHS Global Insight, said in response to those figures that rising inflation is increasing pressure on the Bank of England to raise rates.

However, recent talk of rising rates has prompted some to stiffen their opposition to rate rises.

The Bank of England (BoE) should resist the temptation to raise interest rates in response to rising inflation, forecasting group Ernst & Young ITEM Club warned yesterday, saying such a move could damage the recovery.

ITEM predicts that the consumer price index, the government’s preferred measure of inflation, will peak at nearly four percent in February, causing the BoE to increase interest rates from the current level of 0.5 percent.

And the former home secretary David Blunkett said in a letter to the Financial Times that interest rate increases were not the right tool to deal with inflation.

 

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