UK inflation hits two-year high

According the latest figures from the Office for National Statistics published today, input prices rose an annual 7.2 per cent in September after a 7.8 per cent jump the previous month.

However, the ONS said there was “no explicit evidence” the lower pound was increasing prices of everyday goods.

Most of the rise in inflation was due to the biggest monthly jump in clothing prices since 2010 and a rise in fuel costs, which had been falling a year earlier.

The rise in the inflation rate from 0.6 per cent to 1.0 per cent was the biggest month-on-month jump since June 2014.

Reacting to the news, the Scottish Chambers of Commerce (SCC) signalled that rising inflation is likely to be a feature of our economy in the months to come.

Liz Cameron, chief executive of SCC, said: “We have grown used to very low levels of inflation over the past two years, with few upward pressures on prices. This sharp jump indicates that prices are beginning to rise in particular areas, such as restaurants, hotels, transport and communication. Our SCC Quarterly Economic Indicator has indicated that many of Scotland’s retailers are expecting prices to increase in the final three months of this year and we have already seen that the weakness of the pound has had an upward effect on prices, such as the new iPhone 7 in the UK, which will translate across to mobile phone contract prices.

“For as long as the inflation rate remains below or around the Government’s 2 per cent target, the effects on our economy will be marginal. However, the danger is that inflation pushes beyond that target, since any monetary measures taken by the Bank of England to rein in inflation could have negative consequences in terms of future growth. Rising inflation will complicate an already delicate balancing act for the future growth of our economy.”

Martin Beck, senior economic advisor to the EY ITEM Club, said: “Today’s rise is likely to mark the beginning of a steep upward trend which will drive the CPI measure up to – and then above – the MPC’s 2 per cent target in early-2017.

“The pickup was largely due to base effects, with last autumn seeing the peak of the drag from falling food, petrol and energy prices. However, there is evidence that inflationary pressures are also beginning to intensify. Petrol prices rose by 1.2 pence per litre on the month, while there are signs that core inflation is beginning to accelerate. We calculate that on a seasonally adjusted basis, core inflation was up 0.7% quarter-on-quarter in Q3, the strongest outturn since the end of 2012.

“The pickup in core inflation is likely to have been heavily influenced by the pass-through of the depreciation of sterling that we have seen over the past year. These pressures are likely to intensify over the coming months, particularly as the impact of the post-referendum sterling slump begins to be felt.”