In a hearing before MPs on the Treasury select committee yesterday, Mr Carney cautioned that “inflation is going up” as the plunging pound will put pressure on retailers and manufacturers to raise their prices.
He said the lower official inflation figures for October were down to very volatile clothing and footwear prices, which had been affected as retailers were hit by unseasonally warm weather.
The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation was 0.9 per cent in October, down from 1 per cent in September, against economists’ expections of 1.1 per cent.
The ONS said there was “no clear evidence” that the plunge in the value of the pound since the European Union referendum result was bumping up shop prices.
However, there were signs that the currency fall was ramping up costs for manufacturers, with the Producer Prices Index showing total input prices rising 12.2 per cent in October, compared with a 7.3 per cent rise in September.
The pound’s weakness also helped push up output prices to 2.1 per cent last month from 1.3 per cent in September, the ONS said.
It comes as the latest PMI report for the manufacturing industry showed sterling’s near-20 per cent slump against the US dollar and 15 per cent fall against the euro since the Brexit vote had triggered the steepest rise in purchasing costs in the survey’s 25-year history.
Mike Prestwood, ONS head of inflation, said: “After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well.
“However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops.”
The Retail Prices Index (RPI) – a separate measure of inflation, which includes housing costs – was at 2 per cent in October, unchanged from September. The pound, which was already lower ahead of the data, weakened further yesterday as the lower-than-expected CPI figure signalled there would be less pressure on the Bank of England to curb rising inflation. Sterling fell 0.6 per cent to $1.24 US and 1.1 per cent to €1.15.
The ONS said the biggest downward impact on CPI last month came from clothing and footwear, where the price of garments, especially women’s outerwear, rose just 0.2 per cent between September and October compared with a 2.3 per cent jump a year earlier.
The largest upward pressure on prices was from motor fuels, which climbed 2.3 per cent between September and October after falling 0.9 per cent between the two months in 2015.
The price of petrol rose 2.6 pence a litre to 113.8p, while the cost of diesel rose 2.7p a litre to 116p.
Meanwhile, food prices fell 0.2 per cent last month, compared to a 0.5 per cent drop over the same period last year.
Howard Archer, chief UK and European economist at IHS Global Insight, said October’s CPI dip was likely to be a “very brief respite” as the rise in producer input and output costs pointed to price pressures in the supply chain.
“It looks inevitable that consumer purchasing power will deteriorate markedly over the coming months as inflation moves appreciably higher and earnings growth is limited.
“Companies will highly likely look to clamp down on workers’ pay as they strive to save costs in a more difficult environment and as their imported input prices are lifted by the sharply weakened pound.”
Echoing Mr Carney’s warning yesterday, the Institute for Fiscal Studies (IFS) said households can expect to see the cost of a basket of regular purchases rise by an average of around 2.7 per cent as a result of the fall in the pound after the referendum vote for Brexit.
The think-tank predicted that the 12 per cent collapse in the value of sterling since June will drive up the cost of running a vehicle, including petrol, by 5.1 per cent, clothes and footwear by 3.1 per cent and food by 2.9 per cent.
While poorer households will be particularly hit by price hikes on food and drink, which make up almost a quarter of their spending, higher-income families will bear the brunt of increases in the cost of clothing and petrol, where they spend more than the average.
The IFS found that the impact of Brexit price rises will be spread fairly evenly across social classes, with the poorest facing an extra 2.5 per cent burden, while the richest will pay around 2.8 per cent more. But it said that certain households which spend a particularly high proportion of their income on petrol, food or clothing could be hit to the tune of at least 4.1 per cent.
While the elderly with index-linked state or occupational pensions will largely be protected against the price rises, welfare claimants whose benefits have been frozen in cash terms will be “fully exposed” to the impact of inflation, the think-tank warned.
It added: “Those in work will, unless they are able to negotiate a bigger pay rise, find that their earnings will stretch less far than they otherwise would have done.”
Sterling’s depressed value will also result in an increase of 0.2 per cent in the price of education, 1 per cent for household goods and domestic help and 1 per cent for tobacco products, said the IFS.
Authors Paul Johnson, Peter Levell and Tom Waters stressed that their forecasts related only to that element of inflation caused by exchange rate movements, and do not take into account other factors that may affect prices in the shops.
Conservative MP Stephen Hammond, a supporter of the Open Britain campaign for the closest possible relationship with the EU, said: “Everyone accepts the result of the referendum, but as the Chancellor of the Exchequer said, the British people did not vote to make us all poorer.
“The best way to protect our economy is for Britain to continue to be part of the single market, our largest customer which supports millions of UK jobs and delivers lower prices for consumers.”