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Inflation steady but 3% may be just around the corner

Inflation steady but 3% may be just around the corner

There was little sign of cheer in the UK's latest inflation numbers, with the consumer price index (CPI) holding steady at 2.7% in the run up to Christmas.

Despite falling petrol prices, the cost of home energy kept CPI constant during November, and economists were quick to warn inflation of 3% may not be far off.

'It still looks very possible that increased energy tariffs and higher food prices could push consumer price inflation up to 3% early in 2013 and keep it there for a while,' said IHS Global Insight's Howard Archer.

The chief UK and European economist expects further utility price hikes to kick in during December and January and he is not alone in this view.

Investment managers at Hawksmoor are positioning for a higher inflation world, and AAA-rated multi-asset star Sebastian Lyon told investors in November that after a 'little ice age' of deflation, the cost of goods and services is bound to shoot higher.

Softer oil prices did, however, offer some hope as in the latest CPI reading from the Office for National Statistics (ONS) these countered last month's rise in the cost of food and energy bills.

Producer price inflation also moderated, the ONS said, and IHS' Archer argued this shows price pressures have eased further down the chain.

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