Inflation Still At Negative Level Of -0.1%

Average inflation in 2015 is set to register flat at 0pc, one of the lowest years of consumer price inflation in the post-war era, according to analysts at Barclays.

A fall in the cost of food and beverages as well as alcohol and tobacco, both of which decreased by 0.4 per cent between September and October, also contributed to the decline in inflation. What’s notable is not the low level of headline inflation, but the continued existence of 2% core inflation despite the fact that economic growth has been unusually sluggish for a number of years. The cost for all items aside from food and energy rose 0.2 percent in October, the same increase as in September.

Core inflation’s components include shelter, transportation, medical care and anything that is not food or energy.

Falling transport and food prices weighed down the rate, which has been far from the Bank of England’s 2% target.

Deputy Governor Nemat Shafik said: “A gently-rising path for interest rates would result in the economy moving towards full capacity and inflation coming back to target within a couple of years”.

She says that interest rates could stay low for the foreseeable future if low inflation turns out to be less cyclical than structural. The strong job market has traditionally justified higher Fed rates, except that the level of inflation associated with a stable economy has yet to materialize. The Nasdaq Composite Index rose 5.41 points, or 0.11 percent, to 4,990.03. This month core inflation increased 0.2%, as shelter increased 0.3%.

Tuesday’s report showed an index of energy prices rose 0.3 per cent in October, led by a seasonally adjusted 0.4 per cent rise in gasoline costs.

A healthy sign for the high street was that clothes and footwear prices were up 0.07%, while students also wore the burden, with education costs rising.

The energy index is down -17.1% from a year ago. Under this heading, the CPI for white bread was 324.1, down 0.5% from September but up 1.7% from October 2014.

While the U.S. Department of Labor’s monthly reading of 0.2% sounds low, the Federal Reserve is looking at inflation for up to 2.0% to 2.5% in order to justify raising the fed funds rate. It means that, while the UK’s flirtation with deflation is over, the MPC will want stronger evidence of a real underlying increase in inflation before it pulls the interest rate trigger. Estimates for total CPI ranged from a 0.1 percent decline to a 0.3 percent gain. The cost of healthcare and other services increased, which further indicates firming inflation and supports the idea that the Federal Reserve will raise rates during its December policy meeting.