Inflation Surges to 5.2% but is Expected to Fall
The Consumer Prices Index (CPI) inflation rate hit 5.2% in the UK, reaching a record high in September from a 4.5% rate of inflation the month before. This has been largely blamed on a rise in energy costs during the 30 days. The Retail Prices Index (RPI) increased from 5.2% to 5.6%, which is the highest annual rate since June 1991.
The data was released by the Office for National Statistics (ONS). The executive office said that the largest upward pressure on CPI, by far, resulted from increases in electricity and gas prices. This was due to energy bills rising 9.9% in the last month, while they have jumped 18.3% on the year. There were also heavy upward pressures from communication and air transport services. The cost of transport has jumped 12.8% on the year, while food is up 6%.
The measure of CPI is much higher than the target rate of 2% set by Bank of England. However, bank governor Sir Mervyn King is still expecting inflation to start dropping next year. He says price pressures in the UK are still subdued, while weakening demand should cause prices to fall further next year.
Sir King also defended the decision by the Monetary Policy Committee (MPC) to invest another £75 billion into its quantitative easing scheme, which could cause inflation to rise further. Hikes in energy prices, VAT and import prices account for the the current high inflation rate, and inflation should fall sharply next year when the effect of these factors start to dissipate, he added.