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The latest inflation figures from the Office of National Statistics show that inflation remains well above trend. Although the Bank of England considers this likely to be the case over the next year, questions will remain as to the level of excess capacity in the market, and the ability of spending cuts to feed through into these measures.
Given the number of employees facing below inflation wage increases, above inflation rail fare increases, and the real potential of having reduced public services, concerns are only likely to increase over the coming months.
CPI
The latest inflation figures for October 2010 were slightly above analysts’ expectations, with the CPI measure increasing from 3.1% to 3.2%.
The most significant drivers behind the increase were petrol and diesel, financial services, and games, toys and hobbies. Petrol and diesel costs are likely to continue to exert upward pressures as demand increases, throughout the winter period. Conversely, the main downward pressure came from food products. However, the stability of this trend will depend upon the scale of rising supplier costs (energy, raw materials and distribution) and the ability of the supply chain to absorb such increases. A factor which may help to alleviate the possibility of future rises is that of increased competition from retailers over the winter period.
RPI
The RPI measure of inflation decreased from 4.6% to 4.5%.
The decrease in the RPI annual rate was mainly attributable to the rate of house depreciation and lower fees for financial services. This is because, although both measures include financial services as part of the index calculation, bank overdraft charges and mortgage arrangement fees have much lower weight in the RPI compared with the CPI. This subsequently means that the upwards effects from this area were not as significant in the RPI measure as that of the CPI.
To read the ONS release please click here
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