Inflation could be over the worst after 0.2% fall
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Inflation may have passed its peak after falling 0.2% in October, says Capital Economics.
The consumer prices index fell to 5.0% in October, down from 5.2% in September.
The Office for National Statistics says the largest downward pressures came from falls in the cost of food - partly due to discounting by supermarkets, air fares and petrol. But these were partially offset by higher clothing, electricity and gas prices. The retail prices index of inflation stood at 5.4% in October, down from 5.6% in September.
Vicky Redwood, chief UK economist at Capital Economics, says: “Fingers crossed, October’s drop in inflation should mean that we have now passed the peak in inflation.
“The start of 2012 should see inflation begin to fall sharply and we think it will be below the 2% target within a year.”
She adds it may be too soon to declare decisively that inflation has passed its peak because some of October’s fall was driven by a drop in air fares, which are volatile.
But Capital Economics still predicts inflation should be below 4% by February, 3% by August 2012 and 2% by September.
James Igoe, private client director at stock broker XCAP, says: “While it has yet to dip below the symbolically important 5% mark, the fall in CPI marks a significant drop in inflationary pressure.”
He says while the fall will be welcomed, the markets had already priced it in and will see little impact.
He adds: “But questions will be asked about how long the fall in inflation will last as much of the downward pressure on prices was due to aggressive, and possibly unsustainable, discounting by the major supermarkets.”
Meanwhile, figures from the ONS last week show unemployment has hit its highest level since 1994, rising by 129,000 between July and September 2011 to 2.62m.
More than one million 16 to 24 year olds are unemployed, a rise of 67,000, as are 21.6% of all youngsters, an increase of 1.7% on the previous three months.
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