Advertisement

Tuition fees and food prices lead to inflation increase

The rate of price rises has jumped in October at the fastest rate in a year, taking those who watch these things by surprise.

Inflation has risen from 2.2 per cent in September to 2.7 per cent in October - the biggest rise in over a year and well above expectations of around 2.3 per cent.

It means that notorious squeeze on incomes is back.

Inflation erodes how much you can buy and, as incomes are rising far more slowly (1.7 per cent at last count) than price rises, today's figures highlight how consumers are going to be able to consume a little less in the months to come.

So why the surprise? In part this is because of a one-off factor: the maximum fees universities can charge students has risen from £3000 to £9000. We knew this was coming but the size of its impact on the headline figure has taken some analysts aback.

The second largest factor is food prices. Bad weather here in the UK has led to grotty potatoes and carrots. Yes, even such humble veg really can have an impact on bills. What's worrying is that poor harvests in other parts of the world, like America, which are pushing up international grain prices have yet to feed in to food bills here.

Moreover, rises in utility bills from energy companies aren't included in today's figures so we know inflation will rise in the next few months as those increases feed through.

Looking for good news (and I have scoured the release from the statistics office on your behalf): falls in the price of cauliflowers is partially offsetting other foods getting more expensive. Petrol prices have fallen and we're keeping an eye on crude oil which ultimately influences a huge array of items.

Petrol prices have fallen. Credit: Danny Lawson/PA Wire

We should expect inflation to carry on rising up to Christmas, perhaps reaching 3 per cent in January. What happens after that is a little less clear. If the economy stays as weak as it is that will limit how much companies can push up the prices they charge. The economy would be stuck in the same rut as before: bumping along the bottom as a boost to consumer spending runs out of steam.

The Bank of England publishes its quarterly inflation report tomorrow and its forecasts - how close inflation will be to the target of 2 per cent over the next couple of years - will give us a clue as to whether to expect more help from the Bank.