British consumer prices rose last month at the fastest pace since June 2014 and are set to rise further, propelled by higher global oil prices and the Brexit-fuelled fall in the pound,official data showed on Tuesday. Consumer prices increased by 1.8 percent compared with a year earlier, picking up from 1.6 percent in December, and prices paid by factories jumped by more than 20 percent.
The Bank of England expects inflation to approach 2.7 percent by the end of the year while many economists say it will go above 3 percent, putting to the test the BoE's decision to keep interest rates at a fraction above zero. Stronger inflation will strain the spending power of British households who have so far helped the economy withstand the shock of last June's vote to leave the European Union.
Sterling fell below $1.25 and government bond prices rose after January's inflation reading came in slightly below expectations for a 1.9 percent annual rise in a Reuters poll of economists, as clothing prices dragged. "We're only seeing the thin end of the wedge in terms of inflation," said Richard Lim, chief executive of consultancy Retail Economics. He noted that hedging contracts taken out by retailers to protect against sterling's fall were unwinding.
Factories suffered the sharpest annual rise in prices since September 2008 as raw material costs jumped. The major factor was the price of oil: in dollar terms, the cost of North Sea crude at the end of January was around 60 percent higher than a year earlier, when it had touched a 12-year low.
A Reuters poll of economists published on Tuesday suggested inflation will average 2.6 percent this year and next - similar to the BoE's forecasts. Food prices showed the smallest annual decrease since July 2014 as the cost of chocolate and sweets rose by almost 5 percent on the month. Retail price inflation - tracked by British inflation-linked government bonds and many commercial contracts - also rose to its highest since June 2014, at 2.6 percent.
Comments
Comments are closed.