Inflation hits a 10 year high

The major development of the last month was the further rise in consumer price inflation to 2.7% in November, its highest rate since February 1996. Part of this reflected a rise in energy price inflation. But some of it also reflected a pick-up in core inflation, which has risen sharply from 0.9% in July to 1.6%. With the January pay round now upon us and concerns remaining that the rapid rates of money supply growth will eventually feed into higher nominal demand, we still think that lingering inflation fears will prompt the MPC to raise interest rates once more.