No respite for consumers before Christmas

Main points

• Headline consumer inflation recorded another sizeable increase in November 2021, rising to 5.1 from 4.2 per cent in October. Our measure of underlying inflation as measured by the trimmed mean, which excludes 5 per cent of the highest and lowest price changes, increased to 3.4 per cent in November from 2.1 per cent recorded in October (figure 1).
• The transport category made the most significant contribution (0.3 percentage points) to the headline figure, while price increases in clothing and footwear, food and non-alcoholic beverages, and alcoholic beverages and tobacco added a combined 0.5 percentage points to the annual figure.
• Looking at prices of individual items, 18.6 per cent of goods and services prices changed in November, implying an average duration of prices of 5.4 months. 3.8 per cent of prices were reduced due to sales, 3.2 per cent fell for other reasons and 11.6 per cent recorded increases.
• Our measure of underlying inflation increased in all 12 UK regions. Underlying inflation was highest in London at 4.3 per cent and lowest in Northern Ireland at 2.4 per cent in November 2021.
• In our Autumn review, we forecast that headline inflation will peak around 5 per cent in the second quarter of 2022. This month’s reading suggests that the UK will see a more prolonged period of high inflation until the third quarter of 2022. Higher commodity prices, supply chain disruption, an additional VAT hike scheduled for April 2022 and the continuation of the pandemic means consumer prices are likely to remain above the Bank of England’s target until 2024.
• Although we expect that the Bank of England will raise interest rates in the near future in response to the inflationary pressure, monetary policy affects consumer inflation with a lag of a year to a year and a half, which means above-target inflation is likely to be with us for an extended period of time if the factors pushing up inflations do not dissipate quickly.

“Annual headline CPI inflation increased to 5.1 per cent in November from 4.2 per cent in October. Higher oil prices are becoming more evident in the transport category, which contributed more than a third to the 0.9 percentage point increase in headline inflation in November 2021. Price increases in clothing and footwear, food and non-alcoholic beverages, and alcoholic beverages and tobacco added a further 0.5 percentage points to consumer inflation in the month. Our measure of underlying inflation, which excludes extreme price movements, increased to 3.4 per cent in November from 2.1 per cent in October. Underlying inflation increased in all 12 UK regions, with consumers in London and the West Midlands feeling the pinch as the trimmed mean inflation rose to 4.3 and 4 per cent respectively. Our analysis suggests annual consumer price inflation will remain close to 5 per cent in the first half of 2022, well above the Bank of England’s 2 per cent target.”

Janine Boshoff
Economist, Macroeconomic Modelling and Forecasting

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