Core inflation – which strips out volatile price movements in energy and food and is considered to be a better gauge of domestic price pressures – rose slightly from 1pc to 1.1pc.
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Tuesday’s report showed an index of energy prices rose 0.3% in October, led by a seasonally adjusted 0.4% rise in gasoline costs. It follows a rise in prices at the end of previous 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 Office for National Statistics said consumer price inflation held steady at -0.1 percent on the year, in line with expectations in a Reuters poll of economists. At the same time, input cost inflation slowed down in October to 0.2% from 0.5% in the preceding month, mainly due to a decline in import prices. Prices for medical care services and medical care commodities increased 0.8 and 0.2 percent respectively, while the indices for both new and used vehicles fell 0.2 and 0.3 percent.
Food prices, meanwhile, rose just 0.1%, marking the smallest gain in five months. It was the second straight month that annual core prices were near the Fed’s target of 2%, although the central bank uses a different inflation measure that has been running lower.
In forecasts published this month, the BOE said inflation is likely to reach its goal in late 2017 and accelerate to 2.2 percent a year later. Wholesale industrial prices decreased by 5.1% for 2014.
Don’t let the low level of headline inflation lull you into thinking that the Fed runs a great risk of triggering deflation or harming the economy if it raises the short-term rates to 0.25%. Therefore the consumer price report is important, it is still inferior to the Fed’s key benchmark of inflation, the core rate of the personal consumption expenditures index.
In the 12-month period through October, the CPI was up 0.2% after being unchanged during September. Core costs were up 1.9 percent, matching the September year-to-year change.
Medical costs accounted for much of the increase. Shelter increased 0.3% and is up 3.2% for the year. While food prices rose marginally, four of the six major grocery store food group indexes increased, with cereals and bakery products posting the largest increase since August 2011.
There were also increases in the cost of electricity.
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Today’s inflation figures were widely expected by markets, with sterling remaining largely unaffected by the news. Calculations do not cover prices and types of services, regulated by the government and goods depending on seasonal factors (fruits and vegetables).
