U.K. Inflation Rate Increases More Than Forecast
The U.K. inflation rate rose more than economists forecast in October, climbing for the first time in eight months as fuel costs and air fares climbed.
Consumer prices gained 1.5 percent from a year earlier, compared with 1.1 percent the previous month, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 30 economists was 1.4 percent. On the month, prices rose 0.2 percent.
Bank of England policy maker Andrew Sentance said in an interview yesterday that there may be “volatility” in inflation, which risks exceeding the 2 percent target after two years. He said it is still too soon to consider tightening policy after the central bank expanded its bond-purchase plan to 200 billion pounds ($336 billion) to combat deflation.
“This is the first of a period of sharp increases in headline inflation over the next few months,” James Knightley, an economist at ING Financial Markets in London, told Bloomberg Television. “Given the spare capacity in the economy, there’s no real need to tighten monetary policy any time soon. Inflation is likely to move quite sharply lower again through the back end of next year.”
The yield on the two-year government bond slipped 1 basis point to 1.32 percent. The pound fell 0.1 percent to $1.6788 as of 11:36 a.m. in London.
Bond Purchases
Policy makers decided this month to increase their program to buy bonds with newly created money by 25 billion pounds as they left they key interest rate at a record low of 0.5 percent. Bank of England Governor Mervyn King said last week that he has an “open mind” on whether to expand it further installment payday loans.
The inflation rate increased as prices of fuels and lubricants fell less this year than they did in the same month a year earlier, the statistics office said. The cost of second- hand cars increased by a record on the month because of a shortage of stock, while air fares climbed this year compared with a drop in 2008.
EasyJet Plc, Europe’s second-biggest discount airline, said today revenue per seat at constant currency, a proxy for ticket prices, rose 4.1 percent in the year ending Sept. 30 as the recession buoyed demand for low-cost carriers.
The Bank of England published new quarterly growth and inflation forecasts Nov. 11 showing the inflation rate won’t return to the 2 percent target until 2012, though will rise above the goal around the turn of the year as a temporary cut in value-added tax expires.
Inflation Pressure
“In the short term, inflation is likely to be below target, though we’re also likely to see a bit of volatility,” Sentance said in an interview with Bloomberg Television. “As the recovery develops, there will be some upward pressures on inflation.”
By contrast, Federal Reserve Chairman Ben S. Bernanke said yesterday that inflation “seems likely to remain subdued for some time” as reduced bank lending and a weak labor market restrain the pace of growth. The Fed’s preferred inflation gauge, which excludes food and energy prices, rose 1.3 percent in September from a year earlier, below the 2 percent goal preferred by the majority of Fed policy makers.