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Inflation steadies at 3% as fuel price drop counters dearer food


Ulster University’s Jordan Buchanan

Ulster University’s Jordan Buchanan

Ulster University’s Jordan Buchanan

Inflation unexpectedly held steady last month, as rising food prices were countered by a drop in fuel costs.

Figures from the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) measure of inflation was 3% in October, unchanged from a five-year high in September.

Economists had pencilled in a higher rate of 3.1%, which would have forced Bank of England Governor Mark Carney to write a letter to Chancellor Philip Hammond explaining why inflation is so high.

The Government has set an inflation target of 2%, with protocol dictating that the Bank must contact Mr Hammond if inflation exceeds 3% or falls short of 1%.

The Bank, which hiked interest rates to 0.5% earlier this month, expects CPI to peak at around 3.2% in the autumn, adding further pressure to UK households grappling with paltry wage growth.

The pound was 0.3% lower at $1.31 and 0.6% down at $1.12 after the inflation data.

Jordan Buchanan, an economist at the Ulster University economic policy centre, said: "While signs that the trend rise in inflation may be coming to an end are welcome, 3% inflation is still higher than the wage or salary growth many people are experiencing. Real living standards are still being squeezed."

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And he said the centre forecast was that UK consumer price inflation would "continue to outstrip wage growth throughout the rest of this decade".

Chris Williamson, chief business economist at IHS Markit, said there will be "red faces all round" after inflation failed to expand as expected.

He said: "The recent surge in price pressures is primarily due to the depreciation of sterling since last year's EU referendum, which has increased the cost of imported goods and services, but today's numbers will add to the sense that the worst of this impact has already passed."

Annual food prices rose to the highest level in four years, up 4.2% last month in contrast to a 3.4% expansion in September.

The lion's share of the growth came from vegetables, driven by a rise in the cost of premium potato crisps.

On the month, food prices grew by 0.6%, up from a 0.2% fall over the same period last year.

Electricity, gas and other fuels also pushed 1.3% higher on a monthly basis, compared to 0.6% growth in October 2016.

The main downward pressure on the cost of living came from fuel prices, which fell by 0.4% month-on-month after rising by 2.3% in October 2016.