GDP price statistics in today’s revised third-quarter report confirm that domestically-generated inflation has risen since early 2014, in line with an earlier pick-up in monetary growth. The annual increase in the deflator for “gross value added at basic prices” – a measure of prices of domestically-produced goods and services – was 2.3% last quarter, up from 1.3% in the first quarter and the highest since the third quarter of 2012.

GDP price statistics, admittedly, are often revised significantly. The 2.3% third-quarter figure, however, is consistent with analysis in a previous post suggesting that consumer price inflation would now be 2.0-2.5% rather than 1.3% in the absence of falls in global commodity prices and sterling appreciation.

In an October speech, MPC member Kristin Forbes suggested using two variants of the GVA / GDP deflator to assess domestically-generated inflation: the GVA deflator excluding government and the GDP deflator excluding exports. The former measures private sector domestic inflation while the latter focuses on domestic production sold in the UK. The annual rises in the two measures in the third quarter were 2.2% and 4.1% respectively – see chart.

Meanwhile, annual inflation of services producer prices – another measure cited by Dr Forbes – rose to 1.5% in the third quarter from 0.8% in the first quarter and 1.3% in the second.

The monetarist rule of thumb is that inflation follows monetary growth with a variable lag averaging about two years. Annual expansion of the broad non-financial M4 money measure peaked in May 2013, slowing only modestly since, suggesting that underlying inflation will continue to firm into mid-2015.