The CPI rose by 0.3 per cent between September and October this year compared with a rise of 0.2 per cent a year ago. These 1-month changes are within the normal range for a September to October period although the 0.3 per cent increase this year is towards the top end of the range.
Between 1996 and 2008, the 1-month change between September and October varied between a fall of 0.2 per cent and an increase of 0.5 per cent.
The most significant upward contributions to the 1-month change in the CPI between September and October 2010 came from:
- recreation and culture: the largest upward effects came from games, toys and hobbies where prices rose by 1.9 per cent and cultural services where charges rose by 1.7 per cent. Both increases are records for a September to October period
- transport: by far the largest upward effect came from fuel and lubricants where prices rose by 1.8 per cent due to increases in petrol and diesel costs. This price rise incorporates the impact of the increase in road fuel duty, which took effect from 1 October 2010
The most significant downward contributions to the 1-month change in the CPI between September and October 2010 came from:
- furniture, household equipment and maintenance: the largest downward effect came from furniture and furnishings where prices fell by 3.4 per cent
- clothing and footwear: prices, overall, fell by 0.7 per cent. The largest downward effect came from garments (it is usual for the price of clothing to fall in October)
The change in the CPI 12-month rate is calculated by comparing the price changes between the latest two months and the same two months a year ago. This year the CPI rose by 0.3 per cent between September and October compared with a 0.2 per cent increase between the same two months a year ago.
The 1-month movement was therefore 0.1 per cent stronger this year and this led to an increase in the CPI 12-month rate from 3.1 per cent in September to 3.2 per cent in
October 2010.
The most significant upward contributions to the change in the CPI 12-month rate between September and October 2010 came from:
- recreation and culture: prices, overall, rose by 0.6 per cent this year, a record for a September to October period. This compares with an increase of 0.1 per cent between the same two months a year ago. The main upward effect this year came from games, toys and hobbies, particularly from computer games bought on the high street (rather than via the internet) where prices rose sharply
- transport: by far the largest upward effect came from fuel and lubricants where prices, overall, rose by 1.8 per cent between September and October this year compared to a fall of 0.7 per cent a year ago. This principally reflects a rise of 2.1 pence per litre in the price of petrol between September and October this year compared with a fall of 0.8 pence per litre a year ago.
The rise in fuel prices this year includes the impact of the increase in road fuel duty, which took effect from 1 October 2010. Partially offsetting this upward effect was a downward contribution from second-hand cars where prices, overall, fell this year but rose a year ago. The price increase of 1.1 per cent last year was a record for a September to October period; it was widely reported that stock shortages led to higher prices for second-hand cars during 2009
- miscellaneous goods and services: the upward effect here was driven by financial services where prices, overall, fell by less than a year ago. There were significant reductions in bank overdraft charges and mortgage arrangement fees between September and October last year which have not been repeated this year. Partially offsetting these upward contributions was a downward effect from appliances, articles and products for personal care
- alcoholic beverages and tobacco: prices, overall, rose by 0.8 per cent between September and October this year but fell by 0.2 per cent a year ago. No one component was driving the upward contribution with upward effects from wine, beer and tobacco
The most significant downward contribution to the change in the CPI 12-month rate between September and October 2010 came from:
- food and non-alcoholic beverages: the largest downward effect came from food, particularly vegetables and meat. Vegetable prices fell by 1.0 per cent between September and October this year compared with a rise of 1.1 per cent between the same two months a year ago.
Paul Hunt, the managing director of Phoebus Software said:
“Despite the expectation that inflation would remain broadly unchanged, I think these figures validate the MPC’s decision to keep the Bank Rate low. While interest-rate hawk Andrew Sentence might think the MPC has a ZANU PF-esque stance on inflation, Mervyn King should not be embarrassed about having to give his letter-writing kit another airing this month.
"The current level of inflation is good news for borrowers and first-time buyers who continue to face major disincentives from lenders preoccupied with working out how they’re going to pay back their government loans. It is to the Bank’s credit that house prices have risen relatively steadily for the last six months despite the lack of mortgage finance, but the MPC mustn’t get cold feet now.
"Rates obviously have to rise at some point, but with the public spending cuts now just over six weeks away, the fragility of growth in property prices should remind the MPC of the headwinds faced by the wider economy in the coming year.”
Eric Stoclet, Chief Executive at Crown Mortgage Management says:
“The sluggish housing market is set to continue. While much of the talk today will be about the need to increase interest rates, the MPC hawks should not forget the state of the housing market.&nb
