Soaring petrol prices push inflation to 1.9%… even though food and mobile phone charges are cheaper

By
Daily Mail Reporter
Last updated at 5:49 PM on 15th December 2009

Further sharp increases expected to take inflation above 3%Repossessions rise by 3% - but down on first quarterHouse prices up by 0.5% in October due to lack of properties
Fuel surge: Petrol prices rose by 2.9p to 108.3p a litre in November

Inflation surged to 1.9 per cent last month even though the price of food and non-alcoholic drinks fell along with mobile phone charges.Higher petrol prices were blamed for pushing the Consumer Prices Index (CPI) higher for the second month in a row, the Office for National Statistics (ONS) said.Average fuel prices rose by 2.9p to 108.3p a litre in November, compared with a record 9.3p fall to 95.2p a year earlier.November’s inflation figure is slightly higher than the 1.8 per cent expected by most City economists.Separate figures today showed that the number of repossessions rose by 3 per cent last month.The number of people who were behind with mortgage repayments also dropped to 194,600.CPI is still currently below the Bank of England’s 2 per cent target but could rise to 3 per cent or more early next year when the temporary VAT cut is reversed. This will put up prices - including petrol - across the board.Other factors pushing up inflation in November included rises in second-hand car prices which contrasted with falls a year earlier. Airlines have also cut prices by less than a year ago and clothing prices rose by more than in 2008, the ONS added.Despite the increasing pain at the petrol pumps, there was some relief for hard-pressed households in their shopping bills.The ONS said food and non-alcoholic drink prices edged 0.6 per cent higher over the month but the annual rate of inflation fell to 1.1 per cent - the lowest level since May 2006 - thanks to falling vegetable, meat and dairy product costs.

The broader Retail Prices Index (RPI) - which includes house prices and mortgage interest payments - meanwhile returned to positive territory, with prices 0.3 per cent higher than a year ago.The RPI was last positive in January this year, but has showed negative since March as the impact of house price falls and interest rate cuts last year worked their way through the figures.
House prices fell a year earlier but rose last month, while mortgage interest payments also slid in November last year when lenders passed on the Bank of England’s 0.5 per cent emergency cut in interest rates in the wake of the financial crisis.Daiwa Securities economist Colin Ellis said Bank of England rate-setters should not be deterred from record low interest rates and efforts to boost the money supply by a temporary inflation spike.He said: ‘Policymakers must look through short-term inflation dynamics and relative price shifts such as these, and focus on underlying inflationary pressure.’A temporary rise in inflation, by itself, is not a good reason to raise interest rates.’Jonathan Loynes, chief European economist with Capital Economics, said there will be ‘further sharp increases in the next few months, taking inflation above three per cent.’But the increase is expected to be a ‘temporary spike’, and inflation will drop sharply later in the year.Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said: ‘The increase in inflation is a continuation of a short-term phenomenon which started last month.’The impact of last December’s VAT cut is expected to push up inflation further, causing a temporary spike in December and January.’Inflation should continue on a downward path well into 2010.’In a welcome move for Britain’s homeowners with large mortgages, economists said the Bank is almost certain to leave interest rates at their historic low of 0.5 per cent.Howard Archer, chief UK economist at the consultancy IHS Global Insight, said: ‘Given that November’s further spike up in inflation was broadly in line with the Bank expectations, it does little to dilute belief that interest rates will stay down at 0.50 per cent until at least the final months of 2010.’The ONS figures also showed the retail prices index of inflation was 0.3 per cent higher in November, compared to the same month last year, the first positive figure since January.

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Eight in 10 savings accounts LOSE cash: Inflation goes up - but banks still pay interest rates just above zero

By
Becky Barrow
Last updated at 10:10 AM on 18th November 2009

More than eight in ten savings accounts are paying such a paltry interest rate that customers are effectively losing money, research revealed yesterday. Financial experts said savers have become the ’sacrificial lambs’ of the Bank of England’s desperate attempts to rescue the economy. Because the Bank has held down interest rates, the value of their savings is not keeping pace with inflation, so savers are losing money in real terms.
Sacrificial lambs: In a desperate attempt to rescue the economy, the Bank of England held down interest rates to the detriment of savers
The situation is worst for higher rate taxpayers for whom more than 90 per cent of deposit accounts give a negative return. Banks which are part-owned by taxpayers, such as Halifax and Lloyds, are among the worst of the ‘savings sinners’, paying rates as low as 0.05 per cent. For a basic rate taxpayer with a £10,000 nest egg, this is worth £4 a year after tax - or £3 for a higher rate taxpayer.

The crisis was highlighted yesterday by figures showing a jump in the annual rate of inflation. It rose from 1.1 per cent in September to 1.5 per cent in October, according to the Office for National Statistics. This was the first increase in the consumer prices index measure of inflation since February, and comes amid warnings that inflation will continue to climb in the coming months.

‘Savings sinners’: Halifax and Lloyds pay rates as low as 0.05 per centAt this level of inflation, Britain’s 2.9million higher rate taxpayers are losing money in real terms if the interest rate paid by their bank or building society is below 2.5 per cent. This calculation takes into account the fact that tax is deducted from interest payments. But 91 per cent of savings accounts pay below this rate, according to research from the comparison website Moneynet.
For basic rate taxpayers, the situation is equally bleak. To beat inflation, they need an interest rate of at least 1.875 per cent. But around 80 per cent of savings accounts are paying less than this. Andrew Hagger, a Moneynet financial expert, said: ‘Savers are the sacrificial lambs of the current economic crisis. They are being virtually ignored.
‘For pensioners who rely on their savings to pay the bills, it is devastating. For younger people who should be saving money, it is taking away the incentive to save.’ The survey, which looked at 744 savings accounts, excludes Individual Savings Accounts and fixed-rate bonds. The average savings account is paying 0.98 per cent to its customers, according to Moneynet’s research. At this interest rate higher rate taxpayers with a £10,000 nest egg, who must pay tax at 40 per cent on their savings, this are getting only £58.80 after tax each year. Basic rate taxpayers, who pay tax at 20 per cent, get only £78.40. Before the Bank started cutting the base rate in October last year, the average savings rate was 3.94 per cent. This paid £236 a year after tax on a higher rate taxpayer’s £10,000 nest egg or £315 on a basic rate taxpayer’s £10,000. The biggest losers are pensioners who rely on investment income to boost their modest pensions. Charities warn that pensioners are being forced to make dramatic cutbacks such as switching off the heating and buying cheaper food. Of all the savings accounts with Britain’s 58 building societies, more than 40 per cent are held by someone over the age of 55. Economists warned yesterday that the situation is likely to get worse, not better, as inflation is expected to keep on climbing for the next few months, possibly hitting 3 per cent or above early next year. But some forecast that the Bank will leave the base rate unchanged at 0.5 per cent until late next year because the rise in inflation will only last a few months. Although inflation is relatively low in historic terms any increase is a blow for workers at a time when many are having their pay cut or frozen, or are losing their jobs.

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Factory gate prices rise in September

Prices at the factory gate rose for the first time in five months in
September, with almost all sectors taking part in the unexpected rise,
according to official figures today.

The Office for National Statistics said that non seasonally adjusted output
prices rose 0.5 per cent in September.

It took the annual rate of inflation to 0.4 per cent, the first positive
reading since April. Prices registered a 0.3 per cent fall in August.

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Inflation fall will hit pensions

By Paul Lewis
BBC Radio 4′s Money Box

Some personal pensions will be cut if the annual rate of inflation falls this year.

The government is predicting the Retail Prices Index will show a year-on-year drop of more than 2% by the Autumn. Read more