Dec. 18 (Bloomberg) -- U.K. inflation held at the highest rate since May last month as higher electricity and gas costs kept consumer-price growth above the Bank of England’s target.
Consumer prices rose 2.7 percent from a year earlier, unchanged from October, the Office for National Statistics said in London today. That matched the median forecast of 34 economists in a Bloomberg News survey. Upward pressure on inflation came mostly from food and utilities.
“Consumers’ spending power is being tightly squeezed in the run-up to Christmas,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “Looking ahead, inflation looks set to hover between 2.5 and 3 percent for the best part of the next year as further increases in utility and food prices kick in.”
Bank of England Chief Economist Spencer Dale raised concerns last week that inflation may show “stickiness,” complicating the task of policy makers seeking to stimulate the economy with price growth above their 2 percent goal. The central bank raised its near-term inflation forecast last month and today’s data may fuel debate on whether the central bank’s mandate should be changed.
The pound remained higher against the dollar after the data were published. It traded at $1.6215 as of 11:17 a.m. in London, up almost 0.1 percent on the day.
Clothing and shoes knocked 0.03 percentage point off the annual inflation rate in November, the statistics office said. Food prices added 0.06 percentage point, while utilities added 0.05 percentage point. A price increase by energy supplier SSE Plc affected the November inflation rate, with increases by companies from RWE Npower Plc to Centrica Plc, the owner of British Gas, due to be included in the index from this month.
The goods inflation rate remained at 1.5 percent in November, while the services rate rose to 4.2 percent from 4.1 percent, the ONS said.
Core inflation, which excludes alcohol, food, tobacco and energy prices, remained at 2.6 percent in November.
Retail-price inflation, a measure used in wage negotiations, slowed to 3 percent in November from 3.2 percent in October. The retail-price index excluding mortgage-interest payments was at 2.9 percent.
The Bank of England forecast last month that inflation will be at about 1.8 percent in the final quarter of 2014, and said risks to the forecast for it to reach the target in the medium term are “broadly balanced.”
Today’s figures come days after Bank of Canada Governor Mark Carney, who will succeed BOE Governor Mervyn King in July, said that he has advocated a “flexible-inflation targeting framework” for Canada and suggested that such goals could be overhauled in times of major slumps. He suggested that targeting nominal gross domestic product could be a “more powerful” tool for central bankers. He said later Canada’s lessons may not apply to the U.K.
Chancellor of the Exchequer George Osborne said on Dec. 13 that the inflation targeting regime has “served this country well” and lawmakers would have to be persuaded of the merits of changing mandate.
“The debate about the inflation target will keep on the boil,” said David Tinsley, an economist at BNP Paribas SA and a former central bank official. “The big picture is there’s quite a lot of sense in having a higher underlying rate of inflation in the U.K., as we need some way of getting more stimulus in the economy and the current inflation target doesn’t allow a lot more stimulus because inflation is high.”
The ONS also said today that factory-gate prices unexpectedly fell 0.2 percent in November from October. Economists had forecast a 0.2 percent increase. From a year earlier, output prices were up 2.2 percent, the slowest in four months. Core output prices were unchanged on the month and rose 1.4 percent from a year earlier.
The report also indicated that pipeline inflation pressures remain subdued. Input prices increased 0.1 percent in November from October and fell 0.3 percent on the year.
In a separate release, the ONS said house prices rose 1.5 percent in October from a year earlier, slowing from a 1.7 percent rate in September. London led the gain, with values jumping 3.4 percent.
Elsewhere in Europe, data from Ireland’s Central Statistics Office showed the economy expanded in the three months through September for a second straight quarter, as consumer spending and exports gained. Gross domestic product increased 0.2 percent.
Sweden’s central bank reduced its benchmark interest rate for a fourth time in a year to revive growth as the largest Nordic economy succumbs to Europe’s debt crisis. The repo rate was lowered by a quarter of a percentage point to 1 percent.
In Asia, minutes from the Dec. 4 meeting of Australia’s central bank released today showed that policy makers decided to cut interest rates as a softer job market provided room to bolster demand. By contrast, the Reserve Bank of India left interest rates unchanged for a fifth straight meeting, resisting calls from Finance Minister Palaniappan Chidambaram for lower rates.
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