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Inflation steady at 3% – comment

inflation surprises

Nick Leung, Research Analyst at WisdomTree, said: “Today’s CPI figure shows just what a real threat inflation has become, at least in the short term, as a combination of rising energy bills, the end of the supermarket price war, and yet more fallout from the weak pound holds inflation at a multi-year high.

“However, the inflation outlook will likely moderate ahead, especially as higher input-cost induced inflation and lacklustre wage growth keeps a lid on consumer spending. Indeed, this is already being reflected in weaker retail sales, which fell YoY for the first time since 2013.

“Against this backdrop, the BoE will be encouraged to continue adopting a dovish tone and remain in accommodation mode. This may provide additional stability to a UK economy that is still vulnerable to Brexit-related shocks and uncertainty.”


Alistair Wilson, Head of Retail Platform Strategy at Zurich, comments: “Higher inflation is creating a living standards headache for families as prices continue to rise faster than their pay packets. However, there are signs that the worst of the squeeze on family finances may be coming to an end with British workers set for the biggest pay rises since before the financial crisis, likely to increase by between 2.5 and 3.5 per cent next year.

“As we look ahead to the Budget, it may be that some of the positive noises we have heard thus far are confirmed, easing the pressure on savings. In the meantime, it’s vital people review their spending habits to consider how to make their money work harder and ensure they are putting some aside. Even just a small amount each month, drip-feeding into a stocks and shares ISA or a pension, can grow into a substantial amount.”


Nick Leung, Research Analyst at WisdomTree, said: “Today’s CPI figure shows just what a real threat inflation has become, at least in the short term, as a combination of rising energy bills, the end of the supermarket price war, and yet more fallout from the weak pound holds inflation at a multi-year high.

“However, the inflation outlook will likely moderate ahead, especially as higher input-cost induced inflation and lacklustre wage growth keeps a lid on consumer spending. Indeed, this is already being reflected in weaker retail sales, which fell YoY for the first time since 2013.

“Against this backdrop, the BoE will be encouraged to continue adopting a dovish tone and remain in accommodation mode. This may provide additional stability to a UK economy that is still vulnerable to Brexit-related shocks and uncertainty.”


Freddy Macnamara, CEO and founder of pay-as-you-go insurer Cuvva, said: “Prices are rising faster than wages and consumers are feeling the pinch as a result. This is especially the case for car owners who, in the last year or so, have seen annual insurance premiums increase by five times the rate of inflation. For many, running a car has become completely unaffordable, which is one of the reasons why new car sales are plummeting.

“For anyone who is struggling to keep up with these insurance costs, there are now cheaper alternatives which offer drivers more flexibility. If you only use your car once a week, for example, you’re probably far better suited to a pay-as-you go policy which only requires you to pay for the time you’re actually behind the wheel.”


Kate Smith, Head of Pensions at Aegon said: “People are facing a triple whammy of squeezes in their purse, with inflation still running high, rising interest rates and little sign of real wage increases for the majority of workers. This combination of factors is putting a strain on households and inevitably makes saving a challenge.

Cost of living squeeze may affect success of auto-enrolment

“In the near future, these pressures could act as the first big challenge to the government’s auto-enrolment programme. With employee pension contributions set to triple from 1% to 3% in April there’s a risk opt-out rates may spike as people start to notice the impact on their take home pay. The government has few options to avert this other than to offset the decrease in disposable income with an increase in the tax free personal allowance.

“Employers also face hard decisions. With their auto-enrolment contribution doubling from next April, increases in the minimum wage and Brexit uncertainty, many will struggle to justify wage increases. Employers are between a rock and a hard place, not knowing whether to flag up auto enrolment increases to their employees to be helpful and drive up pension engagement, or whether this risks putting them off pension saving.”


Ben Brettell, Senior Economist, Hargreaves Lansdown comments: “Inflation was expected to tick upwards to 3.1pc today, but in the event it held steady at 3.0pc, with lower fuel costs offsetting higher food prices. This narrowly averts the need for Bank governor Mark Carney to write an explanatory letter to the Chancellor.

“In any case It would have been an easy letter to write. The spike in inflation should be temporary, as the effect of the weaker pound filters through to prices. And the Bank has already responded, with Carney and colleagues raising interest rates last month.

“In truth this small increase in borrowing costs probably won’t do much to dampen inflation. But it should fall back regardless as the currency effect drops out of the figures. We’re already seeing slower rises in the costs of raw materials and prices at the factory gate, which could be a sign the inflationary spike is close to an end.

“That said it looks like it will be a slow decline from here. The Bank’s chief economist Andy Haldane said this week he expects above-target inflation to persist for ‘the next few years’.

“That’s not good news for living standards – or savers. Wage growth is being held back by weak productivity, meaning real pay is still shrinking. We’ve been waiting for this to filter through to the high street, and it looks like that could happen just in time for the crucial Christmas period. The British Retail Consortium painted a gloomy picture last week when it reported a 1pc year-on-year drop in like-for-like sales. Retailers’ woes are expected to be confirmed by official numbers from the ONS on Thursday.

“Some of that’s due to the unseasonably warm weather holding back clothing sales, but it nevertheless puts retailers on the back foot as we move towards Black Friday and the Christmas trading period that lies beyond.

“None of this makes Philip Hammond’s job any easier as he puts the finishing touches to what could be a tricky balancing act in his Budget next week. The OBR is expected to downgrade its economic forecasts, which of course means less projected tax revenue and less money to spend. He’ll also be wary of raising taxes after his proposed increase in National Insurance for the self-employed was shot down in flames earlier this year. So despite calls for a ‘big and bold’ Budget, in truth spreadsheet Phil has little room to manoeuvre.”


Vince Smith-Hughes, retirement expert at Prudential, said: “News that inflation remains high will dismay pensioners living on a fixed income. Rising prices squeeze the incomes of pensioners and the biggest risk for people drawing money from their pension is that they will outlive their savings. Drawing too much income from their pension fund too quickly increases the chance that they prematurely exhaust their funds in retirement. Rising food prices are a particular concern because a higher proportion of pensioners’ income is spent on food, recent trends would indicate pensioner inflation is running at a higher rate than for others.”


Richard Stone, Chief Executive at The Share Centre, said: “Today’s inflation figures from the Office for National Statistics show the headline CPI rate staying static at 3.0% in October. Economists and forecasters had widely expected a small uptick in the headline rate of inflation which would have triggered a letter from the Governor to the Chancellor explaining why inflation was more than 1% away from target and the measures being taken to return the rate to target. The fact inflation has surprised slightly on the downside has spared the Governor that task – at least for this month.

“The principal contributors to the inflation this month were increased food and housing costs. The increase in the price of food of 4.0% year on year puts food price inflation at a four year high. Household costs such as utility bills and council tax payments have also contributed to the rising inflation highlighting further the squeeze on consumers as inflation, particularly in these elements, exceeds wage growth and impacts negatively on living standards.

“That inflation held steady at 3.0% was slightly surprising as many economists expected the impact of Sterling’s devaluation following the EU Referendum to continue to come through in the figures and drive inflation higher. The move by the Bank of England to raise interest rates last week ensured that, had the Governor had to write a letter to the Chancellor because inflation was above 3.0%, then he would have been able to point to some action already being taken.

“The effects of the devaluation of Sterling, particularly on imported inflation in respect of food, are clear. However, these were offset in part this month by a moderating of fuel prices which meant transport costs were actually lower month on month when compared to September. Along with falls in furniture prices this helped keep the inflation rate at 3.0%.

“What is stark is the continued squeeze on the consumer and on personal investors. Different aspects of the inflation basket affect different elements of the population to varying degrees. Those with lower incomes will inevitably spend a greater proportion of those incomes on food, fuel and housing, and less on leisure, for example. The fact that food inflation is running at 4.0% per annum compared to wage inflation at just 2.2%, demonstrates how the living standards and ability to find spare income to save and invest are being squeezed, with real incomes continuing to fall.

“The increase in base rate last week was a precautionary measure which reversed the cut from August 2016. Whether further rises will be necessary will depend on the extent to which the inflation rate proves stubborn at this level and the extent to which wages start to rise as employees seek to return to growing real incomes.

“With employment at record levels and unemployment low, it may be expected that wage inflation would increase. Uncertainty, more part-time employment and the public sector pay cap have ensured that has not happened to date. If inflation and particularly elements such as food inflation, continues at these levels then demands for higher wages may get louder and we have already seen the Government start to soften their stance on the public sector pay cap. Such moves were at least in part a trigger for last week’s increase in interest rates and if we see wage inflation rising more sharply further rises may be on the cards more quickly than is currently anticipated.

“The markets have been relatively unmoved by today’s inflation figures. There was a very slight initial drop in the value of Sterling as markets anticipate that inflation may not peak beyond 3.0% and future interest rate rises may not therefore need to be imminent.

“Fundamentally, the challenge is how the economy delivers growth, and in particular improves productivity to enable a return to real wage growth and a consequent improvement in living standards. Personal investors will now be turning their attention to the Budget on 22 November when we would like to see the Chancellor really focus on that productivity challenge, the investment that is required in technology, education and training and the continued need to support personal investors in their endeavours to save and invest for their and their families financial futures.”