The rate of inflation in the UK rose to 3.1 percent in November, the highest it has been in nearly six years. November’s consumer price index (CPI), which measures price changes for a basket of household goods and services, was up from 3.0 in October, driven by a rise in the cost of recreational goods like computer games. According to the figures released on Tuesday by the Office of National Statistics the cost of recreation and culture is at its highest since early 2010. Transport, and food and non-alcoholic drink prices were also responsible for pushing up inflation.
When the CPI rises above 3 percent or falls below one percent the Governor of the Central Bank is obliged to write a letter to the Chancellor to explain the why prices have risen or fallen by so much. Governor Mark Carney will now have to write that letter to Chancellor Philip Hammond. Hammond, however, is presumably already aware that the driving force behind the inflation rate is the depreciation of sterling since the UK voted to leave the European Union in June 2016. With the value of the money in consumers pockets worth less than it was before the Brexit vote, it means that more money is needed to buy the same amount of goods, resulting in an effective rise in prices.
The financial toll that this has taken on consumers has been compounded by weak wage growth that hasn’t kept up with the rise in prices. The ONS reported that in the three months to October wages grew by only 2.3 percent, which was marginally better than in the previous period but still lagging behind prices. Analysts expect inflation to begin to fall again next year, which, coupled with a continued rise in wages could finally bring some relief for consumers in 2018.