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The November inflation figures showed CPI inflation slightly higher at 0.1% – about what we predicted last month. However this is another month where the change in the inflation rate says more about what was happening last November that currently. A year ago prices declined sharply in November – a combination of petrol and food declines. This year they declined too (especially petrol and wine/spirits), but not as much.
Balanced against these declines we saw increases in services – up 2.4% overall. Particularly the rise in Insurance Premium Tax from 6% to 9.5% also pushed up inflation slightly. November saw another month of clothes price gyrations. They fell in November having risen in October. However it should be noted that over the last year, the CPI clothing index has remained unchanged, implying that the price changes we are seeing probably tell us more about issues with the way ONS measure clothes prices than inflation per se.
RPI went back up to 1.1% from 0.7%. The rise is not that significant and the usual 1% differential between CPI and RPI has now been restored. RPI is higher than CPI because it includes house price rises (6%), rents (3%) and is not subject to the so-called formula effect. Read more about the differences here.
The outlook for CPI next month is that it may well decline again back below zero. This is because the recent fall in crude oil is feeding through to petrol pump prices. In addition, retailers smarting from the decreased footfall this Christmas have been heavily discounting. However as we’ve saying for a while now, everything will change when we see the January inflation figures (published in Feb). The big falls in petrol last January will then fall out of the equation and CPI will probably be back to 0.5% (and RPI 1.5%). These figures are not as high as we were predicting a few months ago and this reflects the recent plunge in the price of crude oil.
Impact of lower oil prices
The current period of near zero price rises is an example of good deflation where the costs of goods go down due to reduced commodity prices. You can see the major impact the decline in oil prices since 2014 has had on the consumer. In early 2014, the average household spend over £100 a month on motor fuels. That will now have declined to less than £80 giving them a windfall of potentially £300 a year. The latest ONS survey indicates that most of this is probably going on luxuries such as new cars, air travel, eating out and short breaks, home improvements and furniture.
The full ONS inflation stats can be found here.