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Inflation edges out of negative territory in November

Published 15/12/2015

A number of economists add that a slowing in the rate of oil price falls and a steadying of global food prices in recent months may lead inflation to edge up further to zero point one per cent in November
A number of economists add that a slowing in the rate of oil price falls and a steadying of global food prices in recent months may lead inflation to edge up further to zero point one per cent in November

Inflation edged out of negative territory last month, but official figures showed that mild weather drove a record fall in clothing and footwear prices amid widespread discounting on the high street.

The Office for National Statistics (ONS) said the rate of Consumer Prices Index (CPI) inflation rose to 0.1% in November, ending two months in a row of mild deflation.

This came as falls in the prices of transport, alcoholic drinks and tobacco were smaller than a year earlier.

The rise in inflation took CPI into positive territory for the first time since July, but CPI has now remained at or close to zero for 10 months in a row in the longest run of flat or falling prices since records began.

Shoppers benefited from heavy discounting of clothes and footwear after a relatively warm autumn saw retailers slash price tags to shift stock of winter items, the data suggested.

Prices of clothing and footwear fell by 0.1% between October and November - the first time they have dropped month on month in November since ONS records started in 1996.

But the ONS said the drop also followed a hefty increase in clothing prices between September and October.

Philip Gooding, head of CPI at the ONS, said: "Although the prices of many items continue to fall, because they are falling at a slower rate than at the same time last year, the overall effect is a slight rise in headline CPI."

The figures show petrol prices continued to slide in the month, down 1.5 pence a litre, although this was less than the 3p a litre drop seen a year earlier.

A range of supermarkets last week cut the petrol price below £1 a litre, the lowest UK price level, excluding special promotions, since 2009. Oil prices have fallen to near seven-year lows, plunging again yesterday due to over-supply and weak demand as the global economy slows.

Minutes of the Bank of England's rates decision last week showed policymakers believe falling oil costs could see inflation remain lower for longer, which may further push back any rise in UK interest rates.

The Bank held rates at 0.5% this month once again, with the cost of borrowing having remained unchanged now for more than six years. But its decision came as the US Federal Reserve is poised later this week to make its first interest rate increase in nearly a decade, while monetary policy in Europe is moving in the opposite direction.

The ONS inflation data also showed that the Retail Prices Index (RPI) - a separate measure of inflation that includes housing costs - rose to 1.1% in November, up from 0.7% in October. This marked the largest month-on-month change in the annual rate for more than three years.

Despite the overall rise in the headline CPI rate - up from -0.1% in October - the cost of many goods and services were sharply lower, with energy prices down by 4.2% on an annual basis in November.

Black Friday discounting was not reflected in the figures, as prices are collected in the middle of the month, according to the ONS.

Food and drink costs continued to fall steeply as the supermarket price war rages on, with prices down by 2.4% on an annual basis in November.

Alcohol and tobacco prices eased back by a more muted 0.1% between October and November, but this was far less than the 1.2% drop seen a year ago as retailers up the cost of wine and spirit.

Experts said that while a rise in US interest rates would increase pressure on the Bank of England to follow suit, the outlook for inflation gives little reason for UK borrowing costs to rise until well into 2016 - or even 2017, according to some.

Chris Williamson, chief economist at Markit, said: "UK inflation remained largely absent in November, and looks set to remain weaker for longer than forecasters have recently been expecting."

He added: "This is clearly good news for consumers in two respects - low prices boost spending power and the dovish outlook for inflation takes pressure off the Bank of England from hiking interest rates any time soon."

Alan Clarke, of Scotiabank, said he believed inflation would now stay out of negative territory, edging up further over the months ahead, albeit gradually.

The Bank of England has already forecast that inflation is likely to remain below 1% until the second half of next year. But plummeting oil prices may see its inflation prediction lowered further.

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