Surprise as inflation rate more than halves but pain predicted for 2021

Inflation slowed sharply last month as clothing and food prices retreated but some experts have warned of a potential new year hike as Brexit looms.
Food and non-alcoholic drinks fell by 0.6 per cent in the year to November as vegetables and confectionery prices moved lower. Picture: Greg MacveanFood and non-alcoholic drinks fell by 0.6 per cent in the year to November as vegetables and confectionery prices moved lower. Picture: Greg Macvean
Food and non-alcoholic drinks fell by 0.6 per cent in the year to November as vegetables and confectionery prices moved lower. Picture: Greg Macvean

The Office for National Statistics (ONS) said the annual rate of consumer prices inflation fell to just 0.3 per cent for November, from 0.7 per cent in October. It was below the expectations of analysts, who had predicted that inflation would dip to 0.6 per cent.

ONS deputy national statistician for economic statistics Jonathan Athow said: “With significant restrictions in place across the UK, inflation slowed, predominantly due to clothing and food prices. Also, after several months of buoyant growth, second-hand car prices fell back a little.”

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The ONS said sliding clothing and footwear costs made the largest contribution to lower inflation, as shoppers saw prices which were 3.6 per cent lower than in the same month last year.

It also highlighted speculation that Black Friday sales were spread further across the month than in previous years.

Meanwhile, food and non-alcoholic drinks fell by 0.6 per cent in the year to November as vegetables and confectionery prices moved lower.

Restaurants and hotels were one of the few areas to have a positive contribution to inflation as prices were increased as the pandemic continued to weigh on business costs and hamper trading.

The retail price index, a separate measure of inflation, was 0.9 per cent in November, falling from 1.3 per cent in the previous month.

Meanwhile, the consumer prices index, including owner-occupiers’ housing costs (CPIH), which is the ONS’s preferred measure of inflation, was 0.6 per cent last month, down from 0.9 per cent in October.

Richard Pearson, director at investment platform EQi said: “Any fall in prices is good news for consumers as we enter the holiday period, but Brexit looms and with it a potential shock to supplies of imported goods which could stoke inflation for reasons totally unrelated to the coronavirus crisis.

“Savers might take comfort from these numbers, that even though their money isn’t earning much interest in the bank, inflation isn’t eating away at their deposits. They would do well to not rest on their laurels though and consider putting their money to better use.

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“2021 could see inflation bounce back with a vengeance. A Brexit supply shock and rapidly reheating economy, pumped up by the vaccine, will almost certainly create material price rises as demand reignites.”

Ulas Akincilar, head of trading at the online trading platform Infinox, said: “December will now prove decisive, and the hope is that a Christmas boost in spending will help prices stabilise and veer the economy away from the insidious danger of deflation.”

James Lynch, fixed income investment manager at Aegon Asset Management, said he did not think inflation would be an issue in the year ahead.

“The risk of inflation coming through in a vicious loop of wage rises and price rises is most likely years away, and the economy has to make up the lost output gap first. It is some gap to make up, with GDP expected to be around 11 per cent lower this year,” he noted.

“Supply side inflation is possible, especially as the ‘just in time’ economy that we rely on requires a seamless supply chain.”

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