UK consumer prices edged slightly higher in October

UK consumer prices edged higher in October, according to the Office for National Statistics (ONS), due to a smaller drop in transport costs than a year ago.

In comparison with the previous month they rose by 0.1% month-on-month and at an annual pace of 1.3%, versus a 1.2% rate of change in the month before.

The consensus estimate had been for a reading of 1.2%.

Smaller declines in transport costs than a year ago – notably for motor fuels and air fares - and price rises for computer games were the main contributors to the rise in the rate of inflation, government statisticians said. Transport costs dropped by 1.1% between September and October of this year, in comparison to a 1.5% drop in 2013, as petrol prices only decreased by 2.5p per litre in comparison to 4.9p per litre fall last year.

Even so, food and motor fuel prices, which have historically been upward contributors to the 12-month CPI rate, are currently reducing it by 0.3 percentage points, ONS added.

A larger increase in prices for recreation and culture this year, of 0.4% against September, versus the 0.2% rise seen in 2013, was the other main factor behind the increase in the twelve month rate of change. Movements in the prices of games, toys and hobbies were the chief factor.

Core consumer prices undershoot forecasts

In comparison with September a sharp decline was seen in the prices of furniture and household equipment, which decreased by 1.1%. Education prices on the other hand registered the largest increase, rising by 7.9%. The prices of alcoholic beverages and clothing also registered large gains, with both advancing by 0.6% on the prior month.

Excluding energy, food, alcoholic beverages and tobacco CPI rose by 0.2% month-on-month and 1.5% year-on-year, less than the 1.6% which economists had projected.

Where will core inflation go from here?

Core inflation will probably remain around current levels

With spare capacity in the economy diminishing, wage growth now showing signs of recovery and the exchange rate having fallen in trade weighted terms since the summer, core inflation will probably remain around current levels through early 2015, before rising gradually from mid-2015, Dominic Bryant, economist at BNP Paribas, wrote in a research note e-mailed to clients.