Underlying Inflation Reaches New Record High Ahead of MPC Meeting Tomorrow

Main points

• Headline consumer price inflation decreased to 10.7 per cent in November 2022 from 11.1 per cent in October. Despite the fall, this rate of annual inflation remains among the highest in four decades. Further, NIESR’s measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes, rose to a new series high of 9.0 per cent from 8.8 per cent in October.
• Trimmed-mean inflation increased in each of the 12 UK regions in November. This measure of underlying inflation in the North of England was the highest at 9.56 per cent, while Northern Ireland had the lowest rate at 8.44 per cent in November.
• Today’s CPI figure is as forecasted by our colleague Huw Dixon last month, under his ‘very high’ inflation scenario. This assumes monthly inflation (‘new inflation’) of 0.4 per cent. ONS data showed the monthly change in the all-items index increasing by 0.4 percentage points between October and November. Taken together with our rising level of trimmed-mean inflation, NIESR continues to expect annual CPI inflation to peak at just over 11 per cent in January 2023.
• Given today’s data, we would argue that the MPC should raise its policy rate further (representing a ninth consecutive rate hike) at its meeting tomorrow.
• For a breakdown of what inflation is and how it is calculated, as well as why the MPC target an inflation rate of 2 per cent, you can read our latest Monday Interview

“Today’s ONS estimates suggest that annual CPI inflation decreased to 10.7 per cent in November from 11.1 per cent in October, mainly driven by a fall in transport costs. Though the yearly rate has fallen between October and November, NIESR’s measure of trimmed-mean inflation increased to a new series high of 9.0 per cent in November from 8.8 per cent in October, indicating that underlying inflation remains high and persistent. This signals the need for the MPC to raise its policy rate further Headline consumer price inflation decreased to 10.7 per cent in November 2022 from 11.1 per cent in October. at its meeting tomorrow, despite Monday’s anaemic GDP number.”  

Paula Bejarano Carbo, Associate Economist, NIESR