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Inflation picks up to 0.7%

Written by: Emma Lunn
Higher clothes and food costs have contributed to a larger than expected increase in the rate of inflation.

The Consumer Prices Index (CPI) 12-month rate was 0.7% in October 2020, up from 0.5% in September, according to figures from the Office for National Statistics (ONS).

Clothing, food, furniture, furnishings and carpets made the largest upward contributions (with the contribution from these three groups totalling 0.16 percentage points) to the change in the CPIH 12-month inflation rate between September and October 2020.

These were partially offset by downward contributions of 0.06 and 0.04 percentage points, respectively, from the recreation and culture, and transport groups. The cost of energy and holidays also fell.

Analysts had expected the rate to remain flat at 0.5% as the economy continues to be affected by lockdown restrictions due to coronavirus.

Jonathan Athow, ONS deputy statistician, said: “The rate of inflation increased slightly as clothing prices grew, returning to their normal seasonal pattern after the disruption this year. The cost of food also nudged up, while second-hand cars and computer games also all saw price rises. These were partially offset by falls in the cost of energy and holidays.”

Rachel Winter, associate investment director at Killik & Co, said: “The tiered restrictions in October led to a fall in consumer spending. Although inflation has managed to rise, it remains at a very low level. As we make our way through this second lockdown, we wait to see if we’ll have limitations on the public lifted or are told to revert back to region-specific restrictions.

“Either way, we’ll continue to see the impact on inflation figures of people being told to stay at home throughout November, advised not to travel and non-essential shops shut down once again.”

The surprise jump in inflation will also have a big impact on savers suffering from record low interest rates, especially for those with substantial amounts in cash savings.

Adrian Lowcock, head of personal investing at Willis Owen, said: “The outlook is also tough, and people should be prepared for a potential rise in inflation over the medium and long-term as fiscal stimulus replaces lockdowns.

“With banks, and even NS&I products, effectively paying zero on any cash savings products now, what we can’t get away from is the fact that inflation will be eroding the value of savers’ wealth if they leave it in cash.”

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