Five questions answered on the latest inflation figures

Fruit, bread and cereals up.

The office of National Statistics today released its most recent inflation data. We answer five questions on the current state of inflation.

What is the current rate of consumer price inflation?

For November inflation remains unchanged from the previous month at 2.7 per cent.

How does this compare to wages?

Over the past year inflation has risen faster than wages with the average monthly income £22 lower than last year, according to a Bank of England survey by NMG Consulting.

What’s risen and what’s fallen in price?

Petrol prices have fallen by 3 per cent a litre on the month to £1.35 while diesel prices dropped 1.5p to £1.42 a litre.

Retail prices index (RPI) inflation, which includes housing costs, fell to 3 per cent last month, from 3.2 per cent in October.

The main rises came from food and non-alcoholic beverages prices which rose by 1.1 per cent between October and November. This covers fruit and, to a lesser extent, bread and cereals were the main contributors.

Housing and household services, such as gas and electric, rose overall by 0.6 per cent between October and November,

What’s the outlook for the future?

According to economists inflation could rise again next year to over 3 per cent as the full effect of the fuel price hikes and rising cost of fuel are factored into the figures.

UK economist at IHS Global Insight, Howard Archer, told The Telegraph: “It still looks very possible that increased energy tariffs and higher food prices could push consumer price inflation up to 3pc early in 2013 and keep it there for a while. Further utility price hikes will kick in during December and January.”

What is the government doing about inflation prices?

A Treasury spokesman told The Telegraph:

“At the Autumn Statement, the Government took more action to help households with the cost of living including a further increase in the tax-free personal allowance and cancelling the fuel duty increase that was planned for January.”

Fruit prices are a major riser. Photograph: Getty Images

Heidi Vella is a features writer for Nridigital.com

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR