Inflation returned to positive territory in November for the first time in four months, but analysts warned “lowflation” is likely to remain for some time to come.
The consumer price index grew by 0.1 per cent year on year last month, up from a 0.1 per cent decline in October, according to the Office for National Statistics.
It was the first positive annual CPI reading since July, but analysts pointed out that factory gate prices were still dropping and firms’ cost pressures remained exceptionally weak, meaning the consumer index was unlikely to pick up strongly. “Price pressures look set to remain subdued for a long while yet. Inflation is going nowhere fast,” Paul Hollingsworth of Capital Economics said. Michael Saunders of Citi added: “We suspect that 2016 will see low but positive inflation in the UK: in other words, an end to deflation but continued lowflation.”
Food prices fell 2.4 per cent year on year in November while transport prices were down 2.1 per cent. Liquid fuel prices were 32 per cent lower, reflecting the collapse of the global oil prices. However, core inflation, which strips out volatile fuel and energy prices, strengthened slightly to 1.2 per cent, up from 1.1 per cent previously.
Factory gate prices fell 1.5 per cent, after a 1.4 per cent drop in the year to October. The price of materials and fuels bought by factories fell by 13.1 per cent, accelerating from the 12.3 per cent fall in the year to October.
Analysts said the absence of inflationary pressures would make it less likely the Bank of England’s Monetary Policy Committee would put up interest rates early next year.
“The committee’s members will wait until a sustained pick-up in wage growth is evident, but this is likely to take some time,” Martin Beck of the EY Item Club said.
The nine member MPC voted by 8 to 1 once again to keep rates on hold at 0.5 per cent earlier this month.
The annual rate of consumer price inflation hit zero in February and has been within 0.1 per cent of that ever since.
