Lower petrol prices expected to bring inflation down

Inflation is expected to have fallen in November due to a drop in prices on motor fuel.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that Consumer Prices Index (CPI) inflation declined to 2.3% in November.

That is compared with 2.4% in October.

The decline is expected to be driven by a sharp drop in motor fuel inflation, after official data showed a 1.9% month-to-month dip in October.

Economists also expect that a number of items which saw unusually large price rises this time last year will not increase by a similar amount again.

In 2017, a sharp rise in computer game prices helped to boost core inflation by its biggest November increase for 20 years.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said this was unlikely to have been repeated in November 2018.

“This component is volatile and cannot be forecast accurately, but we see no reason why last year’s unusually large price rise would have been repeated this year,” he said.

Prices for typically imported products such as clothing and cars also rose more than usual this time last year, but these are also expected to fall.

Recent updates from retailers have suggested that dwindling consumer confidence has forced both high street and online businesses to discount heavily, which may act as further downward pressure on the sector.

The only major upward influence for last month is set to be tobacco, after duties rose by 5.1% at the end of October.

Food price inflation, which cooled off to just 0.9% in October, could also rise. However it is unlikely to contribute significantly to the headline rate.

Mr Tombs said that the consensus expectation of 2.3% in November and the Bank of England Monetary Policy Committee (MPC) forecast of 2.5% were both too high.

He predicted a rate of 2.2% and said that inflation could hit the 2% target as soon as January as the anniversary of last year’s tobacco price increase is reached and Ofgem’s energy price cap is introduced.

He said: “Below-target inflation, however, won’t stop the MPC from raising interest rates next year, because the Committee is forward-looking. Lower oil prices also will free-up money for households to spend on domestically-produced services, using up spare capacity.”