Don't be fooled by inflation fall, Carney warns
Bank of England governor Mark Carney warned Britons not to be fooled by last month's drop in inflation as he said sharp rises in the cost of living are coming.
In a hearing with MPs on the Treasury Select Committee, Mr Carney cautioned that "inflation is going up" as the plunging pound will put pressure on retailers and manufacturers to raise their prices.
He said the official figures for October were down to very volatile clothing and footwear prices, which had been impacted as retailers were knocked by unseasonally warm weather.
The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation was 0.9% in October, down from 1% in September, with e conomists' expecting a higher figure of 1.1%.
The ONS said there was "no clear evidence" that the plunge in the value of the pound since the EU referendum result was bumping up shop prices.
However, there were signs that the currency fall was ramping up costs for manufacturers, with the Producer Prices Index (PPI) showing total input prices rising 12.2% in October, compared to a 7.3% rise in September.
The pound's weakness also helped push up output prices to 2.1% last month from 1.3% in September, the ONS said.
It comes as the latest PMI report for the manufacturing industry showed sterling's near 20% slump against the US dollar and 15% fall against the euro since the Brexit vote had triggered the steepest rise in purchasing costs in the survey's 25-year history.
Mike Prestwood, ONS head of inflation, said: "After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well.
"However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops."
The Retail Prices Index (RPI) - a separate measure of inflation, which includes housing costs- was 2% in October, unchanged from September.
The pound, which was already lower ahead of the data, weakened further as the lower-than-expected CPI figure signalled there would be less pressure on the Bank of England to curb rising inflation.
Sterling fell 0.6% to 1.24 US dollars and 1.1% to 1.15 euros.
The ONS said the biggest downward impact on CPI last month came from clothing and footwear, where the price of garments - especially women's outerwear - rose 0.2% between September and October compared with a 2.3% jump a year earlier.
The largest upward pressure on prices was from motor fuels, which climbed 2.3% between September and October after falling 0.9% between the two months in 2015.
The price of petrol rose 2.6 pence a litre to 113.8 pence, while the cost of diesel rose 2.7 pence a litre to 116.0 pence.
Meanwhile, food prices fell 0.2% last month, compared to a 0.5% drop over the same period last year.
Howard Archer, chief UK and European economist at IHS Global Insight, said October's dip in CPI was likely to be a "very brief respite" as last month's rise in producer input and output costs pointed to price pressures in the supply chain.
"It looks inevitable that consumer purchasing power will deteriorate markedly over the coming months as inflation moves appreciably higher and earnings growth is limited.
"Companies will highly likely look to clamp down on workers' pay as they strive to save costs in a more difficult environment and as their imported input prices are lifted by the sharply weakened pound."