Inflation pipeline

By THIS IS MONEY
Updated:

 

The Daily Mail's City team look at the factors that help determine what inflation will be in the future.

What is it?

The headline inflation rate reflects movements in the prices we pay as individuals in shops and on the Internet.

This is the measure that the Bank of England targets - officially known as the Consumer Prices Index. But forces further up the 'inflation pipeline' combine to determine that rate, and the Bank watches these equally closely.

What is in it?

High up the pipeline, the costs of raw materials paid by factories impact the prices they charge their distributors. These are then passed on to consumers.

In the latest numbers all but two of nine categories of raw material prices rose on the month, led by crude oil, which increased the most since July 2006.

So-called output prices - those charged by factory owners to their customers - jumped an annual 2.7%; the most since August.

That will have been a worry for the Bank of England, which is widely forecast to be preparing to hike rates to 5.5% next month.

Anything else?

Wages are also an important element of the inflation pipeline, because if workers are paid higher salaries that can encourage shop owners to jack up the prices they charge.

Other factors that affect the final CPI rate include house prices, which influence consumers' wealth and therefore their ability to pay higher prices in shops.

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