Recent news supports the earlier forecast of a rise in CPI inflation to about 4% by early 2011, from 3.1% in September. October figures, released on 16 November, may increase to 3.3-3.4%.
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BRC shop price inflation moved up by 0.4 percentage points between September and October. The BRC survey covers non-energy goods, which constitute about 46% of the CPI. Impact on headline CPI rate: +0.2 percentage points between September and October.
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Higher petrol / diesel prices in October versus little change a year before should push motor fuel inflation up from 9.3% in September to about 12%. Impact: +0.1 percentage points in October.
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Commodity price pass-through should result in CPI food inflation rising to at least 7% versus 4.9% in September. Impact: further +0.2 percentage points by early 2011.
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Bank of England survey evidence points to much higher pass-through of the coming VAT hike to 20% than for this year’s return to 17.5%. Impact: up to +0.6 percentage points by early 2011.
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The rise in gas tariffs announced by Scottish and Southern, if followed by other suppliers, will push the CPI gas change up from an annual -5.7% to 3% by January and 9% by April. Impact: +0.4 percentage points by April 2011.
The CPI profile shown in the chart below superimposes these factors on a stable underlying inflation rate of 2.25-2.5%. It suggests an average CPI rise of 3.9% in 2011, with inflation at or above the 3.1% letter-writing level throughout the year.
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