5% CPI by Christmas?

[snowychap]

CPI up to 3.3%; RPI up to 4.3%

Rising food and energy prices have pushed UK consumer inflation up again, the Office for National Statistics (ONS) has said.

The Consumer Prices Index (CPI) measure of annual inflation was 3.3% in May, up from 3% the previous month.

The rise means that the governor of the Bank of England must write to the chancellor to explain what it is doing to control price rises.

The wider Retail Prices Index rose to 4.3% from 4.2% in April.

The biggest contributor to consumer inflation was the rising price of food and non-alcoholic drinks, the ONS said.

This was mainly due to the increasing cost of meat products, particularly bacon, and vegetables.

Increasing household energy bills were also a significant factor, along with the rising cost of books, stationery and foreign holidays. However, this rise in the cost of leisure and recreation was offset by a fall in the price of DVDs, according to the ONS.

Further rises?

Some analysts have predicted that CPI could reach 4% this year.

If inflation rises more than one percentage point above the government's 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices.

The Bank governor Mervyn King has had to write such a letter to the chancellor only once before, when inflation hit 3.1% in April 2007.

Mr King is likely to blame significant rises in international commodity prices.

"This would almost certainly be the first of several letters, as consumer price inflation looks well set to reach 4% this summer before starting to fall back late in the year," said Howard Archer, UK economist at Global Insight.

Economic slowdown

The Bank of England's interest rate-setting committee faces a difficult balancing act.

Analysts warn that raising interest rates to curb inflation would dampen an economy already dented by slowing growth and a weakening housing market.

At its latest rate-setting meeting on 5 June, the Bank left its main interest rate unchanged at 5%.

The MPC had already cut interest rates three times since December in an attempt to help the slowing economy.

However, Mr King and his colleagues will need to be convinced that the inflationary threat has passed before they contemplate cuts in interest rates - despite pleas from those struggling in the housing market.

The European Central Bank, which sets interest rate policy for the 15 nations using the euro, warned earlier this month that inflation remained its biggest concern and that it would raise rates if it felt price stability was under threat.

Passed on

Consumers and companies are already feeling the effects of higher energy and food bills.

Oil prices have nearly doubled over the past year and on Monday the price hit a fresh high of almost $140 in New York.

That in turn has pushed up the cost of petrol and diesel, prompting many people to rein in their spending in other areas.

At the same time, many food prices have surged to record levels because of increased demand and inclement weather in key producer nations.

[bickster]

depends on how many cheap sofa's that they can add to the figures (which people dont even buy annually) and how many expensive foodstufs they can drop (which people do buy weekly if not daily)

[BillyShears]

what people forget is that the inflation figures includes an whiole range of good like electrical, cloths etc. that are either stagnant or actually falling

Should be in the other thread about phrases but Radio 4 described it as 'Stagflation' this morning.

[shambles]

what people forget is that the inflation figures includes an whiole range of good like electrical, cloths etc. that are either stagnant or actually falling

Should be in the other thread about phrases but Radio 4 described it as 'Stagflation' this morning.

Hence the reason there will be no raises in interest rates (touch wood) as growth is so low and raising the base rate of interest will have feck all effect on the inflation of the cost of oil and food anyway.

[ianrobo1]

exactly shambles the problems are world wide every country in the western world is experiencing the same problem there is little this or any other government can do at the moment

[snowychap]

Whose wallet is being hit by inflation?

How does the changing rate of inflation affect you? It can feel very different depending on who you are.

If you are one to sit down to a good book, with the heating on and some food and soft drinks at your side, it'll have cost you much more than a year ago.

But if you are younger and go out shopping for clothes and shoes, with the latest tunes playing through your headphones, you wouldn't have felt the pinch.

One study claims the "real" inflation rate is 1.5% higher for the over-75s than it is for the under-30s, and charities believe that pensioners and low-income families are being affected the most by rising prices.

But all of these people are wrapped up by the "official" inflation rate - and it is this that influences decisions made by bankers and politicians that affect their lives.

Number-crunching

The Office of National Statistics (ONS) announced that the Consumer Prices Index (CPI) rose by 3.3% in May, up from 3% in April.

The wider Retail Prices Index measure of inflation rose to 4.3% from 4.2% the previous month.

This figure is based on a basket of 650 goods and services which is updated annually to reflect spending habits.

During the last round of changes in 2008, fruit smoothies, muffins and portable storage devices such as mp3 players were popped into the basket, with frozen vegetarian ready-meals, CD singles, "stubbie" bottles of lager and 35mm camera films all taken out.

The ONS said this was aimed at reflecting the growing cafe culture of the UK.

But it added to the concerns of a charity such as Help the Aged, which is concerned that the basket of goods is out of step with the typical older person's spending habits.

"The ONS needs to take a look at the basket of goods and whether there should be a separate index for pensioners and other demographic groups," says spokesman Paul Bates.

AGE-RELATED INFLATION CLAIMS

Aged under 30 - 3.3%

Aged 30 to 49 - 3.7%

Aged 50 to 64 - 4.1%

Aged 65 to 74 - 4.3%

Aged 75 and over - 4.8%

Source: Alliance Trust

This is vital, he adds, because the official inflation rate is used to set the annual change in the basic state pension. Pensioners have been feeling the pinch for two or three years, he says.

Mr Bates says that ignoring holidays and cars, and putting more emphasis on food and fuel puts the annual rate of inflation for pensioners closer to 9% or 10% than the CPI of 3.3%.

Investment group Alliance Trust's study of age-related inflation is more conservative, estimating the rate of inflation for the over-65s to be 4.3% and, for the over-75s, 4.8%.

Only the under-30s perceive a rate of inflation that mirrors the official figure, the research claims.

Shona Dobbie, head of Alliance Trust's Research Centre, says that the elderly are hit hardest by inflationary pressures because they spend a bigger proportion of their income on basic goods such as food and utility bills.

The situation is set to get worse for them, she warns.

Consider the essentials

Joseph Rowntree's name lives on for his efforts in tackling poverty, with a foundation set up to continue the work. When his son Seebohm Rowntree decided to measure poverty among the working classes in York at the end of the 19th Century he also judged it on a basic basket of goods.

But it was based on basic rations given in the workhouses of the time. It included bread, bacon, margarine, cheese, dumplings, porridge, pease pudding and vegetable broth.

Nowadays, the accepted definition of poverty in the UK is a household having less than 60% of the national average income.

But the significance of dietary essentials on household finances remain. They are key to lower and middle income groups' perceived level of inflation - the rising prices that they believe really affect them.

The latest ONS figures show that over the past 12 months milk, cheese and eggs have shot up in price by nearly 17%. Oils and fats are up 20% during the same period.

Bacon and fresh vegetables were also up compared with a year ago as bad weather in the producing nations and increased demand had an effect on food prices.

The other big price risers in the last year were electricity, gas and other fuels (up 11%) and books (up nearly 13%).

Materials for doing up a house climbed by 5%.

In contrast, those with some disposable income to spend saw a 7% fall in the price in clothes in May compared with a year ago. Shoes were down nearly 4%.

Second-hand cars was another of the big fallers, down 5% on May 2007, along with audio-visual equipment which dropped by 14%.

Although the ONS basket of goods gives a representative selection of typical purchases, it makes no distinction as to which are necessities and which are luxuries.

The Joseph Rowntree Foundation is conducting an in-depth survey of what different groups of people consider are essentials for a basic standard of living.

The results will show people's changing priorities as they pay more and more attention to how far that pound in their pocket will go.

[snowychap]

In the light of today's BG price increases, I'd like to revise my call upwards. I am now going for above 5%.

Record rise for British Gas bills

British Gas owner Centrica says it is raising gas prices by a record 35% and electricity prices by 9%.

The UK's biggest domestic energy supplier said that the price hikes would take place with immediate effect.

It blamed "soaring wholesale energy prices", but added that standard tariff prices would not rise again in 2008.

The move comes just a few days after rival EDF Energy put up gas prices by 22% and electricity prices by 17%, with other firms expected to follow suit.

Watchdog Energywatch said it believed the 35% gas bill rise was the biggest single increase in the price of a utility seen to date.

British Gas, which has 15.9 million customers, also announced that its profits for the first half of the year were down by 69% to £166m.

Dual fuel

Centrica said the average dual fuel bill for a British Gas customer would go up by 25% - putting the average household bill at about £1,240. This is the second increase this year, after a 15% rise in bills in January.

"We very much regret that we have had to make this decision at a time when many household budgets are already under pressure," said British Gas managing director Phil Bentley.

"The simple fact though is that we have entered an era of unprecedented high world energy prices."

A report prepared for Centrica earlier this month warned that annual average gas bills could rise from £600 to more than £1,000 early in the next decade.

Centrica said that wholesale gas prices in the coming winter would be up 89% on the previous winter.

It added that the UK was suffering from diminishing gas reserves, and estimated that the UK would import 40% of its gas this year compared with 27% last year.

The price of gas has risen in recent months as it is linked to the cost of oil, although oil prices have started to fall again in recent weeks. Energywatch described the link as "absurd".

Fuel poverty

The move will heighten concern about rising levels of fuel poverty - defined as when a household spends more than 10% of its income on fuel bills.

Adam Scorer, of Energywatch, said this had become the most pressing issue for the government.

"People will be in fear of the winter," he said.

He said the 35% rise was "without precedent" and many customers would react with disbelief to the price increase.

But British Gas's Mr Bentley told the BBC that the firm would be working hard with its poorest customers to ensure their homes were energy efficient.

The 340,000 customers on the Essentials account, aimed at low-income groups, will have prices frozen until April 2009.

Tim Wolfenden, head of home services at price comparison website Uswitch.com, said that for everyone else the major jolt would come in March when bills landed after winter gas use.

PRICE CHANGES FOR DUAL FUEL BRITISH GAS CUSTOMERS

Average direct debit from £968 to £1,240

Average standard credit from £1,055 to £1,317

Average pre-paid meter from £1,144 to £1,383

Source: British Gas, figures are based on a medium usage customer

[Awol]

^ Am I glad the bird nagged me into going fixed rate on duel fuel till Dec 09 with BG - yesterday!

Talk about a close one.

[snowychap]

You do know, though, that this will be proof that Mrs Awol is right for some time to come.

[snowychap]

Alistair Darling must not tamper with inflation target, Tim Besley warns

Alistair Darling must avoid at all costs the temptation to tamper with the Bank of England's inflation target, one of the members of the Monetary Policy Committee has warned.

Tim Besley voted for a quarter percentage point rise in interest rates this month

Tim Besley, the MPC member who voted for a quarter percentage point rise in interest rates at its meeting earlier this month, said following proposals from politicians and economists to change the type of inflation targeted or the length of the MPC's target horizon would be "entirely counterproductive".

In an interview with The Daily Telegraph, Prof Besley also admitted that, at their current level, interest rates are dampening growth in the economy, but that they should be raised in order to prevent more pain later.

The MPC is obliged to keep the Consumer Price Index as close as possible to 2pc, targeting the measure two years in the future. With the CPI having jumped to 3.8pc in June, and expected to leap higher still in the coming months, some economists have argued that the MPC should instead target "core inflation", which strips out the prices of volatile goods such as food and energy, giving it more leeway to cut borrowing costs.

However, Prof Besley said: "That won't change the dilemma. It's like saying if we relocate the goalposts and my village team is playing Real Madrid, we'll concede fewer goals. Changing the goal will not change the fundamental dilemma we face, which is responding to two quite serious economic shocks.

"Worse than that, it risks further undermining the credibility of the system - that as soon as things get tough you decide that you were unhappy with the mandate. It would seriously undermine the credibility of anti-inflation policy in the UK if at the first time we face tough conditions there is discussion of changing the objective. So I think it would be entirely counterproductive to move in that direction now."

In comments which may also surprise observers, Prof Besley, who was the only one of the nine MPC members to vote for higher rates this month, admitted that, at 5pc, the base rate is already restraining economic growth.

He said: "Are rates restrictive? They are mildly restrictive, yes. But, given the prospects for inflation, a mildly restrictive rate is justifiable."

Peter Spencer, of the Ernst & Young Item Club, has suggested that unless the MPC moves to targeting core inflation it risks sending the economy into a deeper and more painful recession than necessary. The Conservatives have also indicated that they might consider giving the Bank more discretion over how soon it is obliged to bring the CPI back to target.

[AshVilla]

the rich get richer the poorer get poorer thus is life

[snowychap]

Energy prices set to raise inflation to 16-year high

Energy price rises are set to push inflation up by nearly 1 per cent to a 16-year high of 5 per cent, far above the Bank of England’s 2 per cent target, economists have forecast.

The Bank gave warning in May that the CPI measure of inflation could rise to more than 4 per cent this year before falling again. But economists including George Buckley, chief UK economist at Deutsche Bank, said that inflation could rise by an additional 0.9 percentage points if other energy companies follow the lead of British Gas and EDF Energy by introducing large price increases this month. This would drive CPI inflation up to 5 per cent as early as next month, said Philip Shaw, UK economist at Investec.

Mervyn King, the Bank’s Governor, has said repeatedly that the uncertainty about timing and size of energy price increases over the summer was a critical issue for the rate-setting Monetary Policy Committee (MPC).

In the Bank’s last inflation forecast, published in May, it said that higher energy prices were likely to force up inflation, but economists said that the recent energy price rises have been higher than than the Bank expected.

However, most City economists continue to believe that, having anticipated this factor, the Bank will keep base rates on hold, unless there are signs that the short-term jump is stoking further price pressures.

There was little sign that this was the case from pay data published yesterday. Wage settlements in the three months to June averaged 3.5 per cent, down from 3.6 per cent in the three months to May, figures from Incomes Data Services show, signalling that the higher cost of living has not been reflected in higher pay packets.

The MPC fears that higher wage bills would cause firms to increase their prices, further fuelling inflation.

However, a number of economists feel that the higher peak for inflation means that any short-term move in interest rates is now more likely to be an increase than a cut. Vicky Redwood, of Capital Economics, said: “If the committee were seriously minded to raise rates, now would be the time to do it.

“The quarterly inflation report is published a week after the meeting, giving the committee the opportunity to explain a rate change more clearly.”

[snowychap]

Inflation heading for 5%, say forecasters

Inflation is set to crash through 4% this week - twice the government’s target rate - and economists are warning that soaring food and energy costs are poised to push the cost of living even higher next month.

Official data from the consumer price index (CPI) are expected to reveal inflation climbed from 3.8% in June to about 4.1% in July. The rate is forecast to go beyond 5% by September because of higher gas and electricity bills.

The Bank of England’s monetary policy committee is tasked with keeping inflation at 2%. With the rate now double this level, it is unable to cut interest rates to stimulate the economy.

If economists are right and the inflation rate continues to climb, Mervyn King, the governor of the Bank of England, will be forced to write a letter to chancellor Alistair Darling explaining the reasons for the missed targets.

King will give his latest forecasts for the economy in the Bank’s quarterly inflation report this week. The report will be published on Wednesday shortly after unemployment figures that are expected to show another rise in the claimant count.

Hector Sants, chief executive of the Financial Services Authority, meanwhile, has warned Britain’s banks to prepare for a recession on the scale of the early 1990s.

Philip Shaw, economist at Investec, said: “We can all see the factors that are pushing inflation higher. The one thing that’s going to hold back inflation is weakness in the economy, which is preventing price inflation from creeping through into wage growth.”

The gloomy prognosis comes as Richard Lambert, director-general of the CBI, warns ministers not to play fast and loose with the economy. In a letter sent to members of Britain’s largest business lobby group, Lambert said the “first and most important” principle for policymak-ers in the current environment was to “do no harm”.

“Don’t mess with monetary policy,” Lambert said. “This would be the worst possible time to move the goalposts, for example by shifting the [inflation] target in some way.”

[snowychap]

And boy has it crashed through 4%:

Inflation surges to record 4.4% in July

Inflation surged to a record high of 4.4 per cent in July, more than double the Government's 2 per cent target due to the rocketing cost of food.

The Consumer Price Index (CPI) measure of inflation in July rose at a record pace from 3.8 per cent in June and above analysts' forecast of 4.2 per cent. Inflation is now the highest since current records began in 1997 when the Bank of England was given independence.

Prior to 1997, inflation was last higher in May 1992 when the economy was in the grip of recession.

It also emerged today that the Retail Price Index (RPI) measure of inflation, which includes housing costs, rose to 5 per cent, up from 4.6 per cent in June and is the highest for nearly two decades.

It is now likely that the Bank of England will sharply increase its forecasts for inflation in its three-monthly report to be published tomorrow.

In the previous report in April, the Bank said that inflation would peak at just over 4 per cent.

However, last week the International Monetary Fund said inflation was likely to reach 5 per cent this year, and some economists predict it could spike during August or September.

Last week, the Bank of England's Monetary Policy Committee (MPC), which has prior access to today's inflation figures, voted to keep the interest rate on hold at 5 per cent.

It is now unlikely the MPC will vote to cut borrowing costs in the short-term, and instead may increase the interest rate to stem inflation.

Howard Archer, chief UK and European economist at Global Insight, said: "The sharp spike up in inflation in July increases the risk that the Bank of England will raise interest rates despite the fact that the economy seems more likely than not to contract over the second half of the year."

Analysts' said that the 0.3 per cent rise in core inflation, a measure that excludes volatile energy, food, alcohol and tobacco costs, to 1.9 per cent in July, signalled that even though demand was waning, retailers were being forced to pass on their increased costs to customers.

The cost of living has risen for some households after another round of punishing price increases by two major energy firms, despite a slide in the wholesale price of gas and oil.

However, inflation has also been driven higher by record rises in the cost of food, with food inflation spiralling to 13.7 per cent, the biggest leap since 1997.

The cost of air travel also rose sharply, due to rocketing oil, with prices increasing at an annual rate of 8.9 per cent, up from 5.4 per cent in June.

Energy prices rose at 16.1 per cent in July, up from 13.8 per cent in June, and economists say these could rise more as further price increases kick in.

Households are grappling with rising energy costs after a number of suppliers increases bills in recent weeks.

EDF was the first leading provider to raise bills for its five million UK customers, increasing gas by 22 per cent and electricity by 17 per cent.

However, British Gas went further and increased its gas bills by 35 per cent, and electricity by 9 per cent.

Scottish Power is among those expected to announce double-digit price rises for its 5.2 million gas and electricity customers soon, while E.ON, npower and Scottish & Southern Energy (SSE) are also thought to be preparing further rises to household bills.

The pressure on households' income was highlighted yesterday as the prices of goods leaving factories rose at the fastest pace since 1986.

[Jon]

this is scary in terms of a possible increase in the interest rates.

certainly no chance of a cut this side of Xmas, IMO. And a very real possibility of a raise ....

[ender4]

though Oil prices are now slowly coming down... which will help all sectors of the economy.

[snowychap]

I'm upping my forecast. I'm going for 5.5% to 6%.

E.ON and Scottish & Southern rise power prices by 30%

More than ten million British households were dealt a fresh blow to their finances yesterday as E.ON and Scottish and Southern Energy (SSE) became the latest power companies to raise gas and electricity bills by as much as 29 per cent.

E.ON, which has 5.5 million customers in the UK, announced that it would increase prices by 16 per cent for electricity and 26 per cent for gas. It blamed the soaring cost of wholesale energy, which it said had risen by 51 per cent since February. Hours later SSE, the country’s second-biggest energy supplier, with 8.5 million customers, said that it was increasing electricity and gas prices by 19 per cent and 29 per cent respectively.

Although some fixed-tariff customers will not be affected, the increases will nudge the number of households living in fuel poverty above the five million mark for the first time in more than a decade.

Gordon Brown has promised to deliver an early package of help. The Prime Minister emphasised that he was focused on finding ways to help those hit by soaring energy and food bills and the housing slump.

Among the plans being discussed are fuel vouchers of between £50 and £100 for the poorest families that are eligible for child tax credits. Ministers are also thought to be arranging an accelerated home-insulation plan by requiring energy companies to spend £2.75 billion helping low-income families to make their homes more energy efficient.

The Tories announced a plan yesterday that they claimed could help the poorest households to reduce their energy bills by £100 a year. The party wants to reform post office accounts – held by more than four million families – so that they can be used to pay utility bills using the equivalent of a direct debit. Customers who pay by direct debit are offered lower tariffs. George Osborne, the Shadow Chancellor, said that the plan had the backing of EDF, the French power giant, United Utilities and Water UK, the body that represents water companies.

Alistair Phillips-Davies, the energy supply director of SSE, cast the increases as a response to fundamental shifts in the world’s energy market. “Global demand for all types of energy has risen steeply and supplies of finite resources like oil and gas are under intense pressure,” he said. “The world is experiencing an energy shock of a kind not seen since the early 1970s, but which is likely to have more profound and lasting consequences.”

Adam Scorer, of energywatch, the consumer group, said that the rises pointed to a calamitous failure of competition in Britain’s energy market. “We have seen four price rises in four weeks,” he said. “Energy companies are able to behave like this because the level of competition has been allowed to atrophy.” Graham Bartlett, managing director of retail business for E.ON, said: “I’m very aware of the effect of today’s announcement. This was not an easy decision to make and we’ve tried to keep these increases as low as possible while protecting as many of our customers as we can.” E.ON said that it was investing billions in new energy projects as well as £200 million in a gas storage scheme in Cheshire that it said would enable the storage of gas in the summer, when prices were low, for use in winter, thus reducing price volatility.

The latest rises follow similar recent moves by EDF and British Gas. ScottishPower and npower are expected to follow suit within weeks.

Wholesale prices surge

- Wholesale energy prices surged as traders took fright at supply bottlenecks and geopolitical tensions. The cost of a barrel of crude oil rose 5 per cent, pushing benchmark prices in London and New York above $121 and UK gas prices hit records for the coming winter. The cost of wholesale gas for the first quarter of 2009 reached a new high of 112p per therm because the market, once expecting winter oversupply, now fears shortages in Britain.

[snowychap]

Food prices send retail inflation to new high

The price of goods in British shops soared by a record 3.8 per cent in the year to August after food prices accelerated by 10 per cent while non-food products rocketed as the pound continued to weaken.

Food prices have climbed from a 2.1 per cent rise in August last year to a 10 per cent increase last month, mainly because of the soaring cost of fresh produce, which the British Retail Consortium said rose by 11.9 per cent over 12 months.

Pork products, in particular, have risen substantially, as the grain used to feed pigs has become more expensive while farmers have struggled with the increasing cost of fuel.

The price of eight rashers of bacon at Tesco has risen from £1.25 last year to £2.38. Asda is now charging 30 per cent more 100g of medium pork chops at £5.79 while 175g of smoked ham has risen by 58p in a year to £2.16.

Over the same period, non-food inflation also rose strongly, from 0.1 per cent in July to 0.6 per cent last month.

Clothing and footwear showed the largest increase over a month in which the pound has fallen by 10 per cent against the dollar and plunged to a record low against the euro.

Many clothing retailers pay in dollars when sourcing goods and materials and, as sterling weakens, companies face paying higher prices for imports that they are likely to pass on to customers.

On the whole, retail inflation increased from 3.2 per cent in July to 3.8 per cent in August.

Howard Archer, chief UK and European economist at Global Insight, said: "The further sharp rise in the shop price deflator in August is not good news for the Bank of England.

"While shop prices continue to be pushed up primarily by high food prices, the Bank of England will also note that non-food prices rose up year-on-year for a third month running in August, and at an increased rate, after extended falls. This will maintain concern that retailers are increasingly trying to pass on their elevated costs."

Consumer price inflation, the Government's preferred measure, is currently at a 16-year high of 4.4 per cent, which is almost double the official 2 per cent target.

The Bank of England's Monetary Policy Committee is due to announce its decision on interest rates tomorrow when it is widely expected to keep borrowing costs at 5 per cent.

[mockingbird_franklin]

though Oil prices are now slowly coming down... which will help all sectors of the economy.

Yeah, oil has slowly crept down in price, but as it's bought in dollars the weakening pound might negate any price drops in oil.

[ianrobo1]

the AA have said currently at the pumps oil is around 3p a litre more expensive than it should be

including the weakened pound. However when the £/$ was at $2 did we see lower prices ?

basically the oil companies rip everyone off (for example their cost base has not really changed in a year) make huge profits and governments are impotent because of the reliance of it