U.K. Inflation Nears Two-Year High
October 18 2016 - 5:50AM
Dow Jones News
LONDON--U.K. consumer prices rose at the fastest yearly pace in
nearly two years in September, but statisticians said there was
little evidence so far the uptick was driven by the recent slump in
sterling.
The Consumer Price Index rose by 1.0% in the year to September,
the Office for National Statistics said, the highest increase since
November 2014. Economists polled by The Wall Street Journal had
expected annual inflation to accelerate to 0.9% on the year from
0.6% in August.
The pickup in inflation was driven by a seasonal rise in
clothing prices, as well as an increase in hotel-stay and fuel
prices, data showed.
The pound has fallen sharply since the U.K.'s June 23 vote to
leave the European Union, triggering a steep, 7.8% rise in prices
paid by businesses for their raw materials in August. The rise in
costs eased to 7.2% on the year in September, and there was little
sign so far that it was feeding into higher prices for
shoppers.
"There is no explicit evidence the lower pound is pushing up the
prices of everyday consumer goods," the ONS's Head of Inflation
Mike Prestwood said.
Statisticians said there is anecdotal evidence that retailers
had hedged against a fall in the pound, and may not face cost
pressures to raise their prices for some months.
However, earlier this month consumer goods giant Unilever PLC
began raising the prices it charges British retailers, citing the
rising costs of its imports.
Most economists expect sterling's fall will fuel a sharp revival
in price growth, which has been largely dormant for years. The Bank
of England also expects the decline to push inflation back to its
2% target by around the third quarter of 2017.
BOE Gov. Mark Carney Friday said policy makers will tolerate a
small rise in inflation above its target, since a rise in interest
rates would push unemployment higher. Together with similar
comments from policy makers in the U.S. and Japan, that has fueled
concerns that inflation rates around the world will rise more
rapidly than previously anticipated, prompting a sharp selloff this
week in bonds issued by the U.K. and other governments.
Combined with the uncertainty around the U.K.'s future trade
arrangements, which analysts say will dampen business climate and
tighten labor market conditions, higher inflation could lead to a
fall in consumer spending, one of the main drivers of the British
economy-hurting the U.K.'s growth prospect.
So far, there has been limited signs of that, with retail sales
growing at a healthy pace over the summer. Official retail sales
data for September are scheduled for release later this week.
Write to Paul Hannon at paul.hannon@wsj.com and Wiktor Szary at
Wiktor.Szary@wsj.com
(END) Dow Jones Newswires
October 18, 2016 05:35 ET (09:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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