UK consumer price inflation remains likely to rise above 3% in early 2013, triggering a final exculpatory letter from the Bank’s Governor before his departure next June.
A post in August suggested that CPI inflation would bottom at 2.1% in September before rising to 3.1% in January, with the increase due to a combination of energy and food price rises, higher undergraduate tuition fees and sticky “core” inflation. The Office for National Statistics yesterday reported September inflation at 2.2% (or 2.15% comparing index levels last month and September 2011) and recent news has warranted only marginal adjustments to the assumptions underlying the earlier projection. An updated profile is shown in the chart – CPI inflation is forecast to average 3.1% during the first half of 2013.
The view here remains that the government should exclude the tuition fee boost to the CPI when uprating index-linked benefits – recipients of such benefits are not affected by the fee increase so do not require compensation. A post in April 2011 argued that as much as 40% of the money raised from higher fees could be absorbed by increased inflation-linked spending, representing an unintended and unwarranted transfer from students to pensioners and other benefit recipients.