Consumer prices post largest gain in almost four years

Posted February 16, 2017

Inflation has reached its highest rate for two-and-a-half years, mainly as a result of the rising price of fuel.

Wholesale inflation shot up to a 30-month high of 5.25 per cent in January as rising global crude oil prices spiked domestic fuel cost, even as food prices moderated.

ONS head of inflation Mike Prestwood said the rise in CPI was triggered by rising petrol and diesel prices and a "significant slowdown in the fall in food prices".

However, the increase does take United Kingdom inflation closer to the Bank of England's target rate of 2 percent.

Prices paid by USA businesses for goods and services posted their largest gain in more than four years last month but the strength of the dollar may limit any spillover to consumer inflation.

However, core inflation-the inflation rate excluding food and fuel inflation-inched higher to 5.1 per cent in January 2017 from 4.9 per cent last month.

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Annual rate of inflation was 3.39 per cent for December 2016 and minus 1.07 per cent in January 2016.

The Retail Prices Index (RPI), a separate measure of inflation that includes housing costs, rose to 2.6 per cent, up from 2.5 per cent in December.

Wholesale fuel prices surged 18.14 percent in January on-year, the fastest since October 2008. Output prices rose 3.5 percent on the year, the biggest increase since January 2012, compared with forecasts of a 3.2 percent increase.

The Bank of England has forecast that inflation could hit nearly three per cent later this year and added there is limited tolerance recently for the measure to be above target.

Inflation for manufacturing items also rose marginally to 3.99% from 3.67% during the same period mostly due to higher prices of metal products, iron and steel and edible oils among others. This pushed up import costs, which in turn boosted consumer prices and caused inflation to increase. The Fed targets inflation at 2 percent a year, enough to keep prices relatively stable while encouraging economic activity.

After a report out on Tuesday showed consumer prices jumped 1.8% in Britain in January compared with 1.6% in December, sterling GBPUSD, -0.4231% took a sharp leg lower to erase the gains made in recent days. "We see no interest rate increase from the Bank of England this year or next".