Inflation Hits 3.5%

The Governor of the Bank of England had to write to the Prime Minister to explain the fact that CPI inflation hit 3.5% in January. It is the second largest ever increase in the annual rate between 2 months. There was a 1% increase in the annual rate between November and December. CPI records began in 1996. The all items CPI is 112.4 down from 112.6 in December a change of 0.2% and although the index took a downward movement it is the greatest growth ever for those two months.

Both of these record movement can be at least partially explained by the 15% to 17.5% increase in VAT in January which also affected RPI. Another factor was the price of crude oil. The all goods CPI annual rate is 3.9% from 3.2% last month and the all services CPI annual rate is 3% from 2.6% last month.

The all items RPI in January was 217.9 down from 218 in December, the annual rate being 3.7% from 2.4%. The RPIX (excluding mortgage interest payments) was 4.6% from 3.8%. The all goods index was 169.3 from 169.7 or an annual rate of 6.5% from 5.3%. The all services index was 288.6 from 288.2, or an annual rate of 3.1% from 2.8% last month.

The largest upward contribution to the annual rate of CPI was from transport. Within transport the largest contribution came from a 2.2% rise in the price of fuels and lubricants compared with a fall of 3.4% last year. There were also large upward contributions from maintenance and repairs and the purchase of new and second hand cars. These were partially offset by a fall in prices in fares particularly in long-haul routes and sea transport. Another significant upward contribution came from recreation and culture where recording media particularly DVD purchases were significant along with subscriptions to cable and digital television.

Housing was a significant contributor to the increase in the RPI where mortgage interest payments rose this year but fell a year ago. After housing came motoring expenses mainly petrol and oil. Tobacco was also a significant contributor along with food, alcohol and household services, fuel and light and leisure goods.