Inflation rise expected on high oil, food and utility costs

Britain's ongoing battle with rising prices and energy costs will be thrust under the spotlight again today when the latest inflation data is released. Economists believe that the consumer prices index rose to around 3.4% in December, well above the Bank of England's official target, with petrol, food and utility bills providing the strongest inflationary pressure. "We expect higher oil and commodity prices to have had an upward impact on consumer price inflation in December, while food prices remain elevated," predicted Howard Archer, chief UK economist at IHS Global Insight. Archer added that there was little evidence that high street retailers cut their prices very much in December, despite the bad weather. The data will be released at 9.30am, along with the latest retail prices index — the wider measure of how fast the cost of living is rising. RPI also includes housing costs, and is used to set many pay deals and welfare benefits. CPI rose to 3.3% in November. With inflation already tipped to hit 4% some time in the next few months, some analysts are now openly questioning whether the Bank has lost credibility. "It has even been suggested in some quarters that the Bank is deliberately neglecting its inflation-targeting responsibility in a desire to maintain policy accommodation as the antidote to aggressive fiscal policy," pointed out Jeremy Batstone-Carr of Charles Stanley. The Bank's monetary policy committee is charged with keeping CPI around 2% in the medium term. The MPC has repeatedly argued that inflation will soon fall back sharply, citing spare capacity in the economy following the recession. It voted to leave interest rates unchanged again at 0.5% last week. Last week, the latest audit of inflation "at the factory gate" showed that UK producers raised their prices by 0.5% last month, making goods 4.2% more expensive than a year ago . This was driven by a 12.5% increase in raw material costs. The oil price has also risen over the last year, with a barrel of Brent crude oil now costing almost $100. This has left motorists paying record prices at the forecourt. And the British Retail Consortium has already warned that high street prices rose in December. The BRC reported that average shop prices were 2.1% higher than a year ago, up from November's annual rate of 2%. Food-price inflation remained at 4% in December, but non-food inflation increased to 1.1% from 0.9% in November.