Posted on 12/12/2006 6:35:53 PM PST by blam
Inflation 'highest in decade'
By Edmund Conway, Economics Editor
Last Updated: 1:34am GMT 13/12/2006
Inflation has soared to its highest level for over a decade, fuelling fears that the Bank of England will soon raise interest rates to 5.25pc.
The CPI has been lifted by petrol and utility costs
The Consumer Price Index jumped from 2.4pc to 2.7pc in November, the Office for National Statistics said.
It is the highest annual increase in the inflation measure since November 1995, and brings it closer to the 3pc level at which the Bank of England governor, Mervyn King, would have to write a letter of explanation to the Chancellor.
The ONS said the CPI had been lifted higher by petrol costs and utility bills, which are rising at the fastest rate in 26 years.
Richard McGuire, economist at Royal Bank of Canada, said: "These data will not make comfortable reading for the Monetary Policy Committee. For the Bank's Q4 inflation projection of 2.56pc to be met, December's CPI print will have to edge down to 2.6pc.
advertisement "With the risk of an overshoot therefore very much within the realms of possibility, today's release will prove heartening for those calling for a further rate hike in the UK next year."
The Retail Price Index, the measure formerly used as a target by the Bank, and which includes mortgage costs and some extra items not in the CPI, rose from 3.7pc to 3.9pc - the highest level since 1998.
The so-called fuel and light component of RPI rose by 29.5pc in the year to November, the ONS said. Gas and electricity suppliers have hiked prices dramatically in the past year in order to offset rising wholesale prices. The increase is the biggest since June 1980.
Simon Wallace, economist at the Centre for Economics and Business Research, said: "Today's news continues to leave another interest rate rise in the balance. Despite inflation rising above expectations, the New Year's interest rate decision is far from clear cut.
"The labour market statistics released tomorrow and retail sales figures on Thursday will help to provide a greater statistical insight into the current upside and downside risks within the economy that will drive interest rate decisions in the New Year."
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