Newspaper article The Journal (Newcastle, England)

Households Are Braced for Inflation Rise Pain

Newspaper article The Journal (Newcastle, England)

Households Are Braced for Inflation Rise Pain

Article excerpt

Byline: Russell Lynch

AFIRST rise in inflation in seven months during October prompted fears yesterday of more pain ahead for household finances hit by recession. The Consumer Prices Index (CPI) rose from 1.1% to 1.5% in October - mainly due to a much smaller fall in forecourt prices than the record plunge a year earlier caused by tumbling oil prices.

The first rise in the index since February was followed by warnings that soaring petrol prices would ratchet up the inflation pressure in the coming months.

According to the AA, average UK petrol prices reached a record 108.69p a litre this week - the highest in more than a year and well above the 105.4p October average recorded by the Office for National Statistics.

The end of the temporary VAT cut will add a further 2.4p to petrol prices in January, the organisation warned - taking prices well over the pounds 5-a-gallon mark.

"At today's average price, a litre of petrol will cost more than pounds 1.11 - a sobering prospect for the new year," a spokesman said.

Petrol prices peaked at 119.7p in July 2008 but have bounced back 22.8p since January's low of 85.89p. Diesel prices are also at a year-high of almost 110p a litre.

Although the CPI is still below the Bank of England's 2% target, yesterday's figure is slightly above the 1.4% expected by the City.

Other reasons behind the rise included a bigger than expected jump in food prices, a record rise in secondhand car costs and higher air fares. DVDs, computer games and landline telephone costs also rose.

The Bank expects inflation to climb above its target in the months ahead after the VAT cut is reversed.

Governor Mervyn King could be forced to write another letter to the Chancellor to explain why inflation is more than 1% above target in January, according to JP Morgan economist Malcolm Barr.

"The likelihood of a temporary rise in inflation is widely established, but we continue to think the magnitude of the move up has the potential to be troublesome for the Bank's Monetary Policy Committee," he said.

But other experts said the shortterm rise in inflation was unlikely to divert the Bank of England from its policy of record low interest rates and a pounds 200bn boost to the money supply to combat recession. …

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