Don't be fooled, inflation WILL go up, Mark 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.
Mr Carney told MPs: "Inflation is going up. A pass through of a 20% fall in sterling is going to come and will build towards the end of this year and into 2017."
His warning follows the Bank's quarterly report earlier this month showing inflation shooting up close to 3% next year.
He said the sharp jump in manufacturing costs shown by the latest Producer Prices Index (PPI) figures was "consistent with the first stage of exchange rate pass through".
The Bank estimates that 60% of the pound's fall will be passed through to the cost of imported goods, while the impact on shop prices will take longer but could be substantial.
This will hit consumers in the pocket, he said.
Mr Carney said: "The purchasing power of the country has gone down."
But he confirmed the Bank plans to "look through" this above-target inflation and hold off from raising interest rates, rather than taking action that could hurt growth and lead to higher unemployment.