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Inflation remains at 3.1% in September

Inflation remains sticky but that is unlikely stop the Bank of England printing more money to keep the economy growing.

Inflation remains at 3.1% in September

Consumer prices were 3.1% higher than a year earlier in September, still more than 1% above the Bank of England’s 2% target, but few believe that will stop the Bank of England’s rate-setters doing more to stimulate the economy in the months ahead.

Price growth was limited by a sharp fall in air fares and sea travel costs, down 27.8% and 22.9% respectively.

But for those worried that inflation is set to remain above target for many months to come, the news that prices for clothing, shoes, food and non-alcoholic beverages were all higher in September adds to concerns.

The most significant upward contributions to the one-month change in the CPI between August and September 2010 came from clothing and footwear where prices were 6.4% higher, the largest rise for an August to September period on record.

Jonathan Loynes, chief European economist at Capital Economics, said the rise in core inflation for the first time in seven months is bad news for those members of the Bank of England's Monetary Policy Committee hoping inflation would begin to falter towards the end of the year.

‘The stubbornness of inflation is certainly not making life easy for the MPC. But it is unlikely to prevent the committee from implementing more quantitative easing if, as looks likely, it decides that the economy requires more support,’ he said.

The retail price index – which includes housing costs – rose by 4.6%, down from 4.7% in August.

Earlier, the British Chambers of Commerce warned that economic growth slowed sharply in the third quarter and called on the Bank of England to print another £50 billion before the end of the year. 

Andrew Goodwin, senior economic adviser to the influential Ernst & Young ITEM Club, said the fact that inflation remains stubbornly high is likely to add to tensions within the Bank's rate-setting committee where Andrew Sentance is calling for rate increases and Adam Posen has been calling for more stimulus.

Goodwin believes most members of the committee will ignore today's data and will look through short term factors lifting prices such as the floods in Asia and the wheat crisis in Russia which have pushed cotton and wheat prices to highs not seen for over a decade.

'The figures will do nothing to lessen Andrew Sentance's concerns about persistent overshoots and the potential for high inflation to become entrenched in people's expectations. However, others will remain concerned about the headwinds to growth and the potential for below target inflation further down the line,' he said.

All of which only adds to the growing certainty that interest rates are likely to stay at record lows well into 2011 and possibly 2012, adding to the pain for savers.

7 comments so far. Why not have your say?

mark knowles

Oct 12, 2010 at 10:36

As usual we will inflate our way out of this situation,. same old story throught the centuries . At least STG is being rewarded for austerity measures albeit that we have fallen considerably but still a long way from 1.28 lows recently.

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Keith Snell

Oct 12, 2010 at 11:40

The idea of printing yet more money [Q.E. ] is absurd. Those in favour are clearly not in favour of the UK digging itself out the hole our political masters have dug for us all. The inflation level will only increase still further if QE2 takes place

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Anonymous 1 needed this 'off the record'

Oct 12, 2010 at 13:03

Inflation is more important than many seem to realise. Printing money is dangerous and calling it quantitate easing doesn’t make it any less so.

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Anonymous 2 needed this 'off the record'

Oct 12, 2010 at 13:09

the higher inflation is over time the lower the amount the government borrowed as it devalues the loan even with no payments.

Think of the value of 1 million pounds in 1960, a millionaire in 1960 was an extremely wealthy person, and contrast that with 1 million pounds today.

The government will not worry about keeping inflation as low as it has been recently for this reason.

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Chris B (Slough UK)

Oct 12, 2010 at 13:47

Iceland went bankrupt and their economy is already recovering and their people not saddled with balooning bailout debt! That's not to say they haven't suffered a short sharp shock. Meanwhile we continue our QE road to mediocraty and eventual failure; only for us the people, the road will be far more painful and far longer! Print and be damned!

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Oct 12, 2010 at 17:25

The 2004 pound was worth 86p at the end of 2009 according to Who knows what it will be worth in another five years. Is it too late to buy the Renmimbi?

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Oct 16, 2010 at 20:20

he last government spent so much that they had to print money to cover some of their excesses and now 18 months later the price of a lot of our basic foodstuffs have increased by 60%+. More printing will lead to a proportionately higher costs.

Better to bite the bullet and reduce the benefits of the newcomers, and send them home as most have lied their way in, and are idling at our expense.

The rights of those offspring born here should be removed, as in a number instances they were conceived to earn more money, their parent(s) having contributed zilsch to the economy and likely to be a drain on our limited resources.

The local idlers need to work for their keep, not sup alcohol and fornicate their time away.

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