U.K. Inflation Unexpectedly Accelerates on Transport, Toys

By Jennifer Ryan

An automobile drives onto the forecourt of a gas station in London. Transport prices... Read More

U.K. inflation unexpectedly accelerated last month as transport prices fell less than a year earlier and the cost of toys rose in the run-up to Christmas.
The rate of consumer-price growth increased to 1.3 percent from 1.2 percent in September, the Office for National Statistics said today. Economists forecast 1.2 percent, based on the median estimate in a Bloomberg News survey.
The pickup may prove temporary as Bank of England Governor Mark Carney has warned about “disinflationary pressures” being imported from the euro area. Separate data today showed input prices at factories fell an annual 8.4 percent, with imported food dropping a record 9.1 percent.
Inflation has been below the BOE’s 2 percent target since January, helping Carney justify keeping policy loose. The central bank’ Monetary Policy Committee kept its key interest rate at a record-low 0.5 percent this month and cut its forecasts for growth and
inflation, citing stagnation in Europe.
It “seems likely to be just a blip,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. Inflation “looks set to remain well below the 2 percent target throughout 2015” and “should enable the MPC to raise interest rates only gradually over the next couple of years,” he said.

Computer Games

The pound rose after the data were published, and traded at $1.5658 as of 10:26 a.m. in London, up 0.1 percent from yesterday.
The ONS report showed that in October, consumer prices rose 0.1 percent from September. Transport prices fell 1.1 percent, less than the 1.5 percent drop recorded a year earlier. There was an increase of 0.4 percent in recreation and culture prices, driven largely by toys including new releases of computer games.
Core inflation was unchanged at 1.5 percent in October, while retail-price inflation stayed at 2.3 percent.
Carney said last week that inflation may slow to less than 1 percent in the coming months. That would force him to write a letter of explanation to Chancellor of the Exchequer George Osborne. It would be his first such letter since he became governor in July 2013.
While much of the downward pressure is coming from lower oil and commodity prices, BOE Chief Economist Andy Haldane said this week he’s watching inflation expectations closely in case of any pass-through to consumers’ outlook for price growth.

Food Prices

The ONS said factory-gate prices fell 0.3 percent in October from September and were down 0.5 percent from a year earlier, the biggest decline in five years. Food prices dropped an annual 2.8 percent, the most on record.
That decline is feeding through to consumer-price inflation, with the cost of food and non-alcoholic beverages failing to rise on an annual basis for the past six months. That’s the longest such streak in 14 years.
The BOE’s nine-member Monetary Policy Committee has split in recent months, with two members pushing to raise the benchmark rate. Minutes of the November meeting, showing how the panel voted, will be published tomorrow.
With Carney and the MPC majority showing little inclination to change their position on borrowing costs, investors have pushed back bets on the timing of BOE policy tightening. Officials will refrain from raising the benchmark for at least a year, according to forward rates on the sterling overnight interbank average compiled by Tullett Prebon Plc.