Inflation shows no sign of abating

Inflation reached a surprising four-month-high of 3.2% in October, despite predictions that it would stay unchanged at 3.1%.

The UK consumer prices index (CPI) rose to 3.2% due to rises in toys, alcohol and tobacco, and an increase in the price of petrol.

During October, consumer prices rose 0.3%, slightly more than the 0.2% increase expected, and the main contributions were the price of games, toys and hobbies, which increased by 1.9%, and alcoholic beverages and tobacco prices that grew by 0.8%.

Prices of fuel and lubricants rose by 1.8%, largely reflecting a rise of 2.1 pence per litre in the price of petrol. The rise of fuel prices also includes the increase in road fuel duty, which took effect on 1 October.

Downward pressures on CPI came from the falling price of food, especially vegetables and meat.

As CPI remains more than one percentage point above the Bank of England’s 2 per cent target, governor Mervyn King will have to write his fourth letter of the year to George Osborne, explaining why he has failed to bring the rate down.

It’s predicted that after the government’s budget cuts are implemented and the higher rate of VAT kicks in at the start of 2011, inflation could rise above 3.5% in the new year and it’s unlikely to fall back below 2% by early 2012.

The retail prices index (RPI) measure of inflation, which includes more housing costs, fell to 4.5%, from 4.6% in September.

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