Britain: Petrol pushes inflation to two-year high

By David Litterick

UK News: #5 pension rise urged after jump in inflation

INFLATION rose sharply last month on the back of increased oil and petrol prices.

The Retail Price Index (RPI) jumped from 3pc to 3.3pc, while the RPIX, which excludes mortgage interest repayments and is the government's favoured measure of inflation, rose from 1.9pc to 2.2pc. Economists had predicted the RPIX would only rise to 2pc and were surprised at the strength of the figures. At 3.3pc, all-items inflation matches its highest level since July 1998.

The Office for National Statistics said that increased motoring costs accounted for much of the rise, but said upward effects from household goods and services were also forcing prices higher. Although the 2.2pc RPIX figure is still below the government's 2.5pc target, many economists fear the upward trend could swing the balance in favour of an interest rate rise when the Bank of England's Monetary Policy Committee meets again next month.

Ciaran Barr of Deutsche Bank said: "Overall, this is disappointing and supports our suspicions that an unwinding in weak goods price growth, along with strong service sector inflation, would lead the Bank of England to tighten policy again before the end of the year."

Adam Cole, economist at HSBC, said next week's data - which includes third quarter growth figures, average earnings and retail sales numbers - would be critical to the MPC decision. He said: "The danger is that we will see higher than expected GDP growth and earnings figures. The newsflow this month has already been pretty negative."

Professor Stephen Nickell, one of the hawks on the Bank of England's Monetary Policy Committee, added to the debate yesterday, telling the Wessex Institute of Directors that interest rates had remained at 6pc for the past three months "not for want of trying on my part". He said the MPC needed to stay ahead of the data and predicted that the tight labour market would soon begin to assert upward pressure on average earnings and push up inflation.

He said: "Underneath the calm aggregate picture, there is considerable sectoral turbulence generated by exchange rate movements. . . but. . . it seems to be the case at the moment that the large movements in the exchange rate are not greatly influenced by small changes in interest rates."

http://www.telegraph.co.uk/et?ac=000122257519214&rtmo=kNxkZ3Np&atmo=rrrrrrbq&pg=/et/00/10/11/cninf11.html

-- Carl Jenkins (Somewherepress@aol.com), October 11, 2000