The Office for National Statistics said CPI held steady at -0.1% on the year in line with expectations but this marked the first time consumer prices have fallen on an annual basis for two months in a row since the series was created in 1996.
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Core inflation, which excludes food, energy, alcoholic beverages and tobacco, stepped up 1.1% in October from September’s 1%. It follows a rise in prices at the end of past year, which saw inflation on wine rise by 3.4%, which meant British wine drinkers did not feel the benefits of a then 0.5% drop in inflation. The core CPI has risen 1.9 percent over the past 12 months.
Increases in the price index for a variety of services ranging from medical care to lodging to airline fares drove up core inflation, offsetting declining prices for goods like apparel. Food costs increased 0.1 percent, the smallest advance since May. This met expectations as the Bloomberg consensus was a gain of 0.2% as well. That would be the lowest annual CPI reading since 1989, when the benchmark was introduced, and the lowest overall since 1933 – the year Adolf Hitler came to power – according to the ONS’s historic inflation estimates. Core inflation remained at 1.9% for the second straight month, though it edged up fractionally for a fifth straight month.
“Falling goods prices, depressed by the strong dollar, are unlikely to be powerful enough to hold down overall core inflation if the services components-three-quarters of the core CPI, including rents-are accelerating”, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
While low prices put more spending money in consumer’s pockets, persistently sluggish inflation can signal a weak economy and lead shoppers to put off purchases, dampening economic growth. This year the consumer inflation of 2.8% has been accumulated.
Shortly after the opening bell, the Dow Jones Industrial Average gained 18.58 points, or 0.11 percent, to 17,501.59. Rent just keeps increasing and this month rent jumped by 0.3% and is up 3.7% for the year.
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Higher interest rates should be good news for profits at Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM) and more. The cost of healthcare and other services increased, which further indicates firming inflation and supports the idea that the Federal Reserve will raise rates during its December policy meeting. Real wages have climbed 2.4% in the past 12 months, matching the highest level of the recovery and hitting a level last seen when the USA economy was emerging from the Great Recession in late 2009.
