Inflation tipped to edge higher after power bill hikes

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Inflation is expected to have crept up slightly from a four-year low when figures for December are published today.

The Consumer Prices Index (CPI) rate fell to 2.1 per cent in November but economists on average expect it will have nudged ahead to 2.2 per cent over the latest period.

Petrol price rises and household energy bill hikes are expected to drive the rise but easing food inflation and aggressive high street discounting in the run-up to Christmas should have kept the lid on the increase in the cost of living.

The official data from the Office for National Statistics (ONS) should see inflation remaining just slightly above the Bank of England’s two per cent target. It was last below this level, at 1.9 per cent, in November 2009.

An easing in the CPI level – which was as high as 2.9 per cent in June – keeps the pressure off the Bank’s policymakers as they look to hold interest rates at their historic low of 0.5 per cent and inject billions of pounds into the economy.

The pledge by governor Mark Carney to hold down interest rates until unemployment falls below a certain threshold has built-in caveats which means it no longer applies if inflation looks likely to spiral – but for the moment this is not the case.

Analysts at Capital Economics said that though inflation probably edged up in December, this was “unlikely to be the start of an upward trend” and expected CPI to fall below the two per cent target during 2014.

They said that while there had been major energy price rises and an increase in petrol pump prices, intense retail promotions would drag inflation down.

Looking ahead, CPI could rise again in January but is likely to come down again afterwards with the impact of Government changes to green levies on energy bills and that of the stronger pound on the price of imported goods.

Alan Clarke, of Scotiabank, forecast the latest inflation figure remaining static at 2.1 per cent, although he noted the volatile potential impact of Christmas air fares.