Inflation at 3% as food prices surge, but interest rate hike not inevitable
Soaring food prices including a 21% jump in the price of butter have helped push inflation to a rate of 3% in a direct hit on poorer families in Northern Ireland, it has been claimed.
The Consumer Price Index (CPI) measure of inflation surged to its highest level for more than five years last month, increasing the financial pressure on households and boosting the prospect of an interest rate hike.
And at 3%, Ulster Bank chief economist Richard Ramsey said that prices were rising faster than average earnings, which are increasing at a rate of just 2.1% a year. The Office for National Statistics said the step-up in CPI was driven by higher food and transport costs, pushing the headline rate to levels not seen since April 2012.
Mr Ramsey added that as well as the rise in the price of butter, there had been other food price increases, including a jump of 5.4% for bread, while fish prices were up by nearly 14%.
He said families on benefits in Northern Ireland would feel the pinch in particular, with benefits frozen in cash terms from April 2015 to March 2020.
"NI will be disproportionately impacted due to its higher reliance on benefits and its lower income households," Mr Ramsey added.
In contrast, pensioners will enjoy a 3% increase in their basic State pension next April thanks to the 'triple lock' guarantee, which increases pensions in line with the highest of three indicators in September - CPI, 2.5%, or annual wage growth.
At a 3.2% increase year-on-year, the price of consumer goods was rising more quickly than services, which were going up by 2.7%.
Food price inflation was at a four-year high of 3.4% - but Mr Ramsey added that the increase followed three years of falling figures since 2014. The separate CPIH index for inflation, which includes owner occupiers' housing costs and council tax, or rates, was 2.8%.
But Mr Ramsey cautioned against the assumption that an increase in interest rates from their present low of 0.25% was inevitable following the rise in inflation. The Monetary Policy Committee of the Bank of England has an CPI inflation target rate of 2%.
"Financial markets view an increase from 0.25% to 0.5% as more likely than not," Mr Ramsey added.
"That said, the Bank of England has looked through above-target inflation before. A move in November is by no means a slam dunk. Consumer price inflation should fall back towards the MPC's 2% target in 2018 even without a rate increase. Don't be surprised if we are still waiting for the first interest rate hike since 2007 in the new year."
Esmond Birnie, senior economist at the Ulster University's economic policy centre, said the extent to which families were facing a decline in their living standards would increase.
He added that the MPC would start to feel under more pressure to raise the interest rate.
Sterling was down 0.3% against the US dollar at 1.32 in early afternoon trading yesterday following the update, and 0.1% lower versus the euro at 1.12.