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.

Photo: Getty Images
Show Hide image

The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.