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Last Updated: Tuesday, 18 October 2005, 09:45 GMT 10:45 UK
Fuel price rise hits UK inflation
Petrol sold out signs after fuel protests
Petrol price rises affected the inflation rate
UK inflation rose at a lower than expected rate in September, despite fears over surging petrol prices.

Consumer price index (CPI) inflation rose to 2.5%, from 2.4% in August, the Office for National Statistics said.

The underlying rate of retail price inflation rose from 2.3% to 2.5%, but the headline rate - which includes mortgages - fell to 2.7% from 2.8%.

Petrol costs did fuel the rise, but their effect was slightly offset by falling footwear and clothing prices.

Fuel factor

The ONS added that the average price for ultra-low sulphur petrol rose by 4.6p per litre in September, compared with a rise of around 0.1p a year ago.

These numbers probably pull the argument away from Mervyn King's implied hawkishness against higher rates
David Brown, Bears Stearns International

A steep fall in the cost of air fares also helped to limit the increase in inflation.

Statisticians said rising recreation and culture costs had also contributed to the increase.

Cut price offers for computer game consoles on the high street last year had not been repeated while theatre ticket prices had risen, the ONS explained.

However, "core inflation", excluding energy costs and food, drink and tobacco, was unchanged at 1.7%.

The rise in CPI inflation means the figure has now stayed above the government's target of 2% for three months in a row.

It is the highest rate of consumer price inflation since January 1997 when the index first started.

Before December 2003, the Bank of England used the retail price index (RPI), which included the cost of mortgages and other housing costs, as its target for inflation.

The RPI is still used to index state benefits like pensions.

In its quarterly Inflation Report in August, the Bank of England predicted CPI inflation would rise above government targets in the short term.

But it predicted that inflation would then ease off before gathering strength and passing the 2% level at the end of its two-year forecast period.

Concerns eased

Experts said the figures were a surprise, as CPI inflation had been expected to come in at 2.7% and to rise even higher levels in coming months.

"Some of the concerns out there about CPI hitting 3% ... at least in the short term look overdone," said Ross Walker, UK economist at RBS Financial Markets.

"Unless we get another surge in oil prices, this may well mark the peak," Mr Walker added.

Crude oil recently reached record highs of $70 a barrel amid fears over the effect of Hurricanes Katrina and Rita, however, prices are now beginning to fall back slightly.

Analysts added the UK could "breathe a sigh of relief" over the predicted fallout for interest rates.

"These numbers probably pull the argument away from Mervyn King's implied hawkishness against higher rates back to the doves camp and for the UK easing bias to stay intact," said David Brown, chief European economist at Bears Stearns International said.

Howard Archer at Global Insight added he believed the "door was still ajar" for a rate cut this year - particularly as core inflation had remained steady.




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