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Last Updated: Tuesday, 13 November 2007, 14:40 GMT
Petrol prices push up inflation
Petrol prices
Average petrol prices rose above 1 a litre last week
Rising petrol prices pushed the UK inflation rate to 2.1% in October, above the government's 2% target, official figures show.

The rise in the consumer prices index also stemmed from higher food prices.

The figure was up from September's rate of 1.8%, and the RPI inflation measure, on which many pay deals are based, rose to 4.2% in October from 3.9%.

Prices rose by more than economists expected and could reduce the prospect of a cut in interest rates.

The Bank of England's Monetary Policy Committee (MPC) kept borrowing costs at a six-year high of 5.75% last week.

Dilemma

Many analysts expect an interest rate cut to 5.5% early next year given a weaker outlook for the economy as the effect of the recent turmoil in financial markets filters through to consumers.

FASTEST RISING FOOD PRICES
Bacon
Strawberries
Bananas
Biscuits
Cakes
Milk
Cheese
Eggs
Source: ONS

"October's UK CPI figures will heighten the growing dilemma for the MPC posed by slowing activity on the one hand and lingering inflation concerns on the other," said Jonathan Loynes, an economist at Capital Economics.

The Office for National Statistics said the chief reason for the rise was higher petrol costs.

Petrol pump prices rose by 2.7 pence per litre in October, reflecting the increase in fuel duty that came into effect on the first of the month, the ONS said.

Oil prices remain close to record highs near $100 a barrel, and the average price of petrol rose above 1 per litre last week.

Rising prices of meat, fruit and breads and cereals led to an increase in food costs, the ONS said.

On Monday data showed that rising petrol, chemicals and food prices had sent factory gate inflation to the highest rate for nearly 12 years.

Price headache

The BBC's economics editor Evan Davis said that while the rate of inflation may not seem a significant problem, it does cause headaches.

Evan Davis
The turning point has been a long time coming, but it seems to have arrived
Evan Davis,
BBC economics editor

"At the moment, anything above target severely complicates the management of the economy over the next two or three years," he explained.

"Just as doctors find it harder to give a heart by-pass to a patient with renal problems, a central bank finds it harder to deal with an economic slowdown and falling asset prices, while there's inflation lurking around in the system," he added.

"But this argument is particularly important at the moment, as most of the indications suggest the economy is at an interesting turning point.

"The Bank of England needs room for manoeuvre right now."

Inflation graph



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