Good news for importers but bad for consumers as inflation hits two-year high

 

By Sam Brooksbank

Inflation in the UK recovered to a two-year high last month.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation hit a higher-than-expected 1.2% in November after easing back to 0.9% in October.

Inflation is the increase in the general price level of good and services.

It can be bad news for many people as it has the effect of eroding their disposable income – as the general price level rises and incomes stay flat.

The ONS said a stronger performance from the pound last month took the edge off import prices for manufacturers despite total input costs climbing 12.9% in the year to November, compared to a 12.4% rise in October.

Sterling has plunged to a 31-year low since Britain voted to leave the European Union is expected to push up the cost of living as manufacturers pass on higher costs to consumers.

Mike Prestwood, ONS head of inflation, said: “November’s slight rally in the value of sterling eased the inflationary pressure on businesses importing raw materials but consumer prices continued to edge upwards, due mainly to the rising cost of clothing and fuel.”

Robert Armstrong an analyst at AON in Leeds said: “The people of Leeds won’t be able to buy as many good and services and will feel poorer as a result.

“How this affects Leeds further depends on the distribution of incomes, those on higher incomes will feel the burden significantly less than those who are near the poverty line.”

He added: “For those with debt such as mortgages and loads, inflation can be a blessing. Inflation can increase the general level of incomes. If the rate of inflation surpasses the rate on interest charged on a loan the real value of that debt will decrease.

Joel Dungate, Investment Analyst at investment management and stockbroking firm Redmayne-Bentley in Leeds said: “This highlights the effects of Sterling depreciation coming through.

“We believe that consumers are likely to feel the effects of price increases if they have not done so already, especially with the price of clothing, motor fuels and the cost of eating out having been main contributors to the inflation figure.”

He added: “It is also notable that Sterling weakness is feeding through to factory gate prices, affecting the price of imported goods, which suggests inflation is likely to run further.”

 

 

 

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