The British pound rose Tuesday, as the Office for National Statistics (ONS) reported consumer price inflation rose to the highest rate in over five years.
A higher inflation rate gives the Bank of England (BOE) more scope to raise interest rates.
The UK CPI hit 3% on the year in September. That’s up from a 2.9% rate in August and is the highest rate since March 2012, the ONS said in its data release.
“The largest upward contribution came from transport, in particular air fares.,” the ONS said in its briefing note. It added the price of food and non-alcoholic beverage also made significant contributions to the acceleration of inflation.
The British pound immediately began climbing at 930 BST, when the data were published, moving up towards the $1.328 level against the dollar.
The sterling move higher was also supported by other details in the CPI data release. The core rate of inflation, which strips out the prices of more volatile items such as food and energy, held steady at the elevated rate of 2.7% in September.
Inflationary pressures elsewhere
Other official figures also published by the ONS Tuesday, also show that prices aren’t just rising for consumers on the high street.
Prices paid for raw materials by British-based manufacturers rose strongly in September. The annual increase in the cost of raw materials and energy was 8.4% higher in September than a year earlier. That’s the same annual rate as August’s upwardly revised increase, the ONS data showed.
However, manufacturers didn’t pass that rise on to their customers as the rate of price inflation for goods leaving the factory gate eased to an annual rate of 3.3% in September. In August output producer price inflation was 3.4%.
And, the ONS also published its official measure of UK house prices, based on sold prices as recorded by the Land Registry. The ONS August house price index rose 5.0% in the year, up from a 4.5% increase in July.
All of which is broadly supportive of a BOE interest rise. The central bank’s next policy meeting is November 3rd, when a growing number of analysts are anticipating the first UK rate hike in over a decade.