Inflation rose to 3.1% in November, which is the highest rate in almost six years while the most recent data shows that average weekly wages are growing at just 2.2%.
The annual inflation rate has more than doubled from 1.2% to 3.1% in the past year – its highest level since March 2012 – mainly as a consequence of the fall in the value of sterling following the EU referendum in June 2016.
Mark Carney, the governor of the Bank of England, will now have to write a letter to Chancellor Philip Hammond explaining how the Bank intends to bring inflation back to its 2% target. Carney is expected to blame the overshoot on the devaluation in sterling and will add that inflation will come back towards its target during 2018 as the impact of weak sterling lessens.
Figures from the Office for National Statistics (ONS) showed that more expensive computer games and a smaller November fall in airfares than a year ago were the main factors behind a rise in the consumer price index measure of inflation from 3% in October. A breakdown of the ONS data showed food prices up by 4.1% on a year ago, with transport costs rising by 4.5% and clothing and footwear up by 3%.
Richard Lim, chief executive at Retail Economics, said that the rise in inflation had come “at precisely the wrong time for retailers”.
“In the run-up to Christmas, the cost of living, now rising at the fastest rate in five years, remains uncomfortably high for households.” He said that food inflation “is one of the most transparent indicators of living costs and often the catalyst to cut back on spending elsewhere”.
John Hawksworth, chief economist at PwC, said: “Real pay levels continue to be squeezed, and we expect this to persist for at least the first half of 2018, further dampening consumer spending growth.”
City analysts think that inflation is near to a peak but evidence that there may be more inflationary pressure in the pipeline emerged from separate ONS figures for producer prices, which measure the cost of the fuel and raw materials used by industry and the price of goods leaving factory gates.
In November, fuel and raw material bills for manufacturers were 7.3% higher than a year ago, up from 4.8% in October, while factory gate prices rose by 3%, up from 2.8% in October.
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