Inflation rises by half a per cent

CPI now stands at 2.7 per cent.

The ONS has released the inflation report for this month. It's up. A lot:

The Consumer Prices Index (CPI) annual inflation stands at 2.7 per cent in October 2012, up from 2.2 per cent in September. The main upward pressure came from the education sector (university tuition fees) with smaller upward contributions from food & non-alcoholic beverages and transport. These were partially offset by downward pressures from the housing & household services, recreation and miscellaneous goods & services sectors.

The Retail Prices Index (RPI) annual inflation stands at 3.2 per cent in October 2012, up from 2.6 per cent in September.

That's the highest since May for the CPI, and 0.4 points higher than the consensus estimate (which was for 2.3 per cent for RPI and CPI). The fact that the main upward pressure came from tuition fees means that this rise is almost entirely due to the government's own decisions – and also that it is all-but-guaranteed to fall by an equivalent amount in a years time.

The extent of the effect of rising tuition fees is clear in this chart, which breaks down the various contributions of different spending categories on inflation:

This is a crisis of a sort: It is also important to point out that this now leaves inflation again racing ahead of wage growth, by a full percentage point (wage inflation stood at 1.7 per cent in the last estimate); and the idea of a "misery index" - compounding the effects of inflation and unemployment together to see the pain the economic climate inflicts on the typical person - indicates that this rise will wipe out recent goodwill gained from the falling unemployment rate. But it is not a macroeconomic crisis; without the government's short-sighted actions in 2010, this rise would be just 0.1 per cent, easily enough to argue that low inflation is here to stay. We'll see next month what happens to the overall trend.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, comments:

This is a very nasty surprise. We had expected inflation to pick up in October because of the rise in tuition fees and food prices, but the scale of the increase was surprisingly large. 

Further out we are still confident that inflation will slow back towards the target. And because of the causes of the October increase, it could be argued that these figures aren’t quite as bad for household finances as they may first appear. They represent a significant squeeze for those affected directly by the tuition fee increase, however the vast majority of people will not have been impacted. 

Finally, it is worth pointing out that the inflation target is a symmetrical one. The Bank of England's mandate is to bring inflation to 2 per cent, and it must write a letter to the chancellor explaining why it has failed if it is more than one point away in either direction. If inflation does stay below three per cent, then it remains not much to worry about.

Updated 9:53 and 11:29 with further analysis.


A student walks through St John's, Cambridge. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Conservative disunity is not all good news for Labour

The Tory leadership election could squeeze Labour out of the conversation, just like Blair and Brown did to the Tories.

The first test of opposition politics is relevance. Other key yardsticks - political plausibility, economic credibility, setting the agenda and developing a governing vision - all matter greatly. But making yourself a central part of the relentless cycle of daily politics, the terms of which are generally set by the governing party, is the first hurdle. It matters not whether you sign up to new politics or old: be relevant or wither. 

The issue of relevance is becoming a pressing issue for Labour. Take George Osborne’s favoured issue of the so-called national living wage.  Leave to one side the rights, wrongs and nuances of the policy and just consider the basic political dynamic it creates.  Osborne has, quite deliberately, set up a rolling five year argument over a steadily rising wage floor. On one side, is the Chancellor arguing that his policy is the right thing for Britain’s ranks of low paid workers. Pitted against him are ranks of chief executives of low-paying big business. With each impending hike they will holler at Osborne to go no further and the media will happily amplify the row. In response the Chancellor will quietly smile.

Sure, on occasions this will be uncomfortable stance for Mr Osborne (and if the economy takes a downward turn then his pledge will become incredible; there are always big risks with bold strokes).  Yet the dominant argument between the Conservatives and big business leaves Labour largely voiceless on an issue which for generations it has viewed as its own.

We may well see a similar dynamic in relation to the new national infrastructure commission – another idea that Osborne has plundered form Labour’s 2015 manifesto. It’s far too early to say what will come of its work looking at proposals for major new transport and energy projects (though those asserting it will just be a talking shop would do well not to under-estimate Andrew Adonis, its first Chair). But there is one thing we can already be confident about: the waves of argument it will generate between Osborne’s activist commissioners and various voices of conservatism. Every big infrastructure proposal will have noisy opponents, many residing on the right of British politics. On the issue of the future of the nation’s infrastructure – another touchstone theme for Labour – the opposition may struggle to get heard amid the din.

Or take the different and, for the government, highly exposing issue of cuts to tax credits. Here the emerging shape of the debate is between Osborne on one side and the Sun, Boris Johnson, various independent minded Conservative voices and economic think-tanks on the other. Labour will, of course, repeatedly and passionately condemn these cuts. But so have plenty of others and, for now at least, they are more colourful or credible (or both).  

The risk for the opposition is that a new rhythm of politics is established. Where the ideological undercurrent of the government steers it too far right, other voices not least those within the Conservative family - moderates and free-spirits emboldened by Labour’s current weakness; those with an eye on the forthcoming Tory leadership contest – get reported.  Where Osborne consciously decides to tack to the centre, the resulting rows will be between him and the generally Conservative supporting interests he upsets. Meanwhile, Labour is left struggling for air.

None of which is to say there are no paths back to relevance. There are all sorts of charges against the current government that, on the right issues, could be deployed - incompetence, complacency, inequity – by an effective opposition.  Nor is the elixir of relevance for a new opposition hard to divine: a distinct but plausible critique, forensic and timely research, and a credible and clear voice to deliver the message. But as yet we haven’t heard much of it.

Even in the best of times being in opposition is an enervating existence. Those out of power rarely get to set the terms of trade, even if they often like to tell themselves they can. Under Ed Miliband Labour had to strain – sometimes taking big risks - to establish its relevance in a novel era defined by the shifting dynamics of coalition politics. This time around Jeremy Corbyn’s Labour is up against a Chancellor willing to take risks and pick big fights: often with traditional Tory foes such as welfare claimants; but sometimes with people on his own side.  It’s also a new and challenging context. And one which Labour urgently needs to come to terms with.   

Gavin Kelly is chief executive of the Resolution Foundation