By Ian McConnell
Editor for Business
In the U.K., annual inflation As apparel prices dropped, official figures show that they fell to 0.3 percent in November from 0.7 percent the previous month.
The Office for National Statistics noted that last month’s fall in prices in the category of clothing and footwear contrasted with the normal trend of October-November rise.
It said, “The price decline in November this year reflects increased discounting, and there have been media reports that some Black Friday sales may have spread further throughout the month.”
Between October and November, apparel and footwear prices dropped 2.6 percent, after rising 1 percent in the same two months last year.
The ONS also reported that between October and November, a 0.2 percent decrease in food and non-alcoholic beverage prices had a significant effect on the overall annual inflation rate, compared to a 0.8 percent rise in the same two months last year.
“The effect came from a wide range of food and beverage categories, but especially sugar confectionery, vegetables and meat, products such as large bars of chocolate, ice cream, cauliflower, premium potato chips and cooked ham.” it said.
The annual inflation rate is far from the Bank of England’s 2% target set by the Treasury.
Howard Archer, senior economic advisor at the think tank EY ITEM Club, indicated that the temporary VAT cut for the hospitality industry would continue to restrict inflation.
He said, “Very low inflation is supporting consumer purchasing power amid rising unemployment and the prospect of limited wage increases.”
Looking ahead, he added, “Price-conscious consumers, excess capacity, limited earnings, and subdued economic activity are likely, at least in the near term, to limit inflation….”
When the temporary VAT cut for the hospitality industry expires in March, inflation will increase in 2021.’ The adverse baseline effects arising from the fall in oil prices in early 2020 would also have an upward impact. An expected gradual strengthening of the recovery starting in early 2021 could also put some upward pressure on inflation, but it is unlikely to rise quickly and could be around 2% by the end of 2021.”
He predicted that in the event of a no-deal Brexit, annual inflation “could reach 3% during 2021…. due to a net upward effect from tariffs and a likely significant weakening of sterling.”