–Sep CPI +0.6% m/m; +5.2% y/y vs Aug 4.5% y/y; above median
–Sep core CPI +0.2% m/m; +3.3% y/y vs Aug 3.1% y/y; above median
–Sep RPI +0.8% m/m; +5.6% y/y; Aug RPIX +0.8% m/m; +5.7% y/y

LONDON (MNI) – Consumer price inflation hit a three year high in
September as utility bills soared, matching the highest rate ever
recorded, figures released by National Statistics showed Tuesday.

The rise in inflation, which significantly exceeded the median
forecast from City economists, is likely to fuel concerns that the
record level of price increases could push up future inflation
expectations.

The Consumer Prices Index rose 0.6% on the month in September,
pushing the rate of inflation up to 5.2% from 4.5% in August. This was
the joint highest rate on record, matching the 5.2% outturn seen in
September 2008. It was also well above the forecast for a 0.4% monthly
increase and 4.9% rise on the year.

It also means that inflation for the third quarter as a whole came
in at 4.74%, above the Bank of England’s latest forecast of 4.6%
published in the August Inflation Report — and this forecast was made
before the BOE pumped a further Stg75 billion into the economy via
Quantatative Easing.

The most significant contributions to the upward push on the CPI
rate came from sharp increases in utility bills during the month.

The data show that the cost of housing, water, electricity, gas and
other fuels jumped 8.6% in the year to September, up from the 5.1%
increase seen in August and marks the fastest rate of increase since
February 2009.

National Statistics said that the effects of most of the recent
utility price costs had been captured in today’s September report, but
also said that the effects of price rises from two more major utility
companies would not be seen until next month’s report.

There was also large upward pressure from air transport and
communication services. Airfares rose 17.6% in the year to September.

Food and non-alcoholic beverage prices also added to the gloom,
rising 6.4% in the year to September.

Monetary Policy Committee members have been explicit in warning
that inflation would rise sharply in September before falling back
sharply.

“I think there’s a very good chance that when the inflation
numbers… are published for September, CPI inflation will be above 5%,”
BOE Chief Economist Spencer Dale said in an interview recently.

The BOE has forecast that CPI inflation will ease to 3.6% in Q1
next year before falling to 1.8% in Q1 2013.

There is, though, growing scepticism that inflation will fall
sharply and eventually below target as the BOE forecasts. In recent
years the BOE has proved to be consistently too optimistic with respect
to inflation, having always forecast it to be 2% on below in 2 years’
time, only to see it rise to more than double the forecast.

Core CPI inflation, a much watched gauge of underlying inflationary
pressures, rose to 3.3% in September from 3.1% in August.

The Retail Prices Index, which used to be the key index for gauging
inflationary pressure in the economy, rose 0.8% on the month and was up
5.6% on the year, the highest since 1991. This will prove to be
expensive for the public finances as the September figure is used to
index pension and benefit payments.

Excluding mortgage interest payments, RPIX rose 0.8% on the month
and 5.7% on the year, the highest since 1992.

–London bureau: 0044 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: MT$$$$,M$B$$$,MABDS$]