Inflation reaches new high

18 October, 2011

Inflation hit a 20-year high in September, rising to 5.6%, official figures confirmed today.

The Retail Price Index (RPI) figure was last higher in 1991 – when it reached a whopping 5.8% – the Office for National Statistics said. Consumer Price Index (CPI) reached 5.2% during the month – a three-year high – and matching its record.

The CPI measure is way ahead of the Bank of England’s target rate of 2%. However, Bank governor Mervyn King still expects inflation to begin falling next year, once factors such as January’s VAT rise drop out of the equation.

CPI has never been above 5.2% since the introduction of the measure in January 1997. Analysts had expected the annual rate to jump to 4.9% from 4.5% a month earlier.

The September figure should represent a peak in the rate of inflation, with petrol price rises and January’s VAT hike falling out of the year-on-year comparisons in the fourth quarter and the new year respectively. Commodity prices, which tend to lead consumer prices, have fallen by just over 10% from the peak seen in February, which also suggests we should see some further downward pressure on inflation.

Chris Williamson, chief economist at Markit, the financial information services company, said the September figure should represent a peak in the rate of inflation and warned that, with consumer spending “very subdued”, retailers would have to focus on “discounting to win sales in coming months”.





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