Britain’s headline rate of inflation surged to a higher-than-expected 1.9 per cent in November following a sharp increase in petrol prices.

The Consumer Price Index (CPI), the key measure of inflation, rose from 1.5 per cent in October and above expectations of an increase to 1.7 per cent. It is the second acceleration in the index in nine months.

The Office for National Statistics (ONS), which compiled the data, said the rise was in part down to a big jump in transport costs, up 6.9 per cent in November compared to a year ago, mainly due to a rise in fuel prices.

The Retail Price Index (RPI) measure of inflation, which is more frequently used in wage negotiations and includes mortgage costs, moved back into positive territory, rising to 0.3 per cent in November from minus 0.8 per cent in October.

Economists have forecast that inflation could climb as high as 3 per cent in the coming months – back above the Bank of England’s target of 2 per cent – as a number of factors, including the return of the VAT rate from 15 per cent to 17.5 per cent in January, filter through into the headline figures.

The Bank of England had also warned that it expects a spike in inflation in coming months because of the weak pound, higher crude prices and the forthcoming reversion in the VAT rate.

However, the Bank has indicated it expects the spike in inflation to be temporary as factors such as high levels of unemployment persist.

It forecasts that CPI inflation will be around 1.6 per cent at the end of next year, boosting expectations that interest rates will stay at historic lows for some time.

Howard Archer, chief UK and European economist at IHS Global Insight, the consultancy, said today’s CPI figure was “slightly more than expected but is still not much to worry about – for now at least.”

There was no evidence to suggest the spike was not temporary and “there is still a good chance that inflation will moderate and be back under 2 per cent later in 2010,” he said.

Mr Archer added: “Underlying pressures (will be) largely contained by muted recovery, wage moderation amid high unemployment and an ongoing need for retailers to price competitively in the face of still limited consumer spending.”

Jonathan Loynes, economist at Capital Economics, said: “November’s consumer price figures will do little to ease recent concerns over the near-term inflation outlook but we remain convinced that price pressures will remain subdued over the medium term.”

The ONS said that “by far the largest upward pressure” on CPI was from transport costs, in particular the cost of fuel.

The price of fuels and lubricants rose by 2.8 per cent between October and November this year, it said. They fell by a record 8.3 per cent a year ago. The large fall last year was due to the drop in the price of crude oil. Transport costs also include air fares.

The ONS said the index had also been pushed higher by an increase in the cost of clothing and footwear, particularly men and women’s outwear.

A rise in the price of household heating also played a part.

Source : The Times

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