The Office for National Statistics has just published October 2013 inflation figures. These show the consumer price inflation rate falling from 2.7 per cent in September to 2.2 per cent last month, a much greater fall than the average of economists’ expectations of a drop to 2.5 per cent. The discredited retail price index, which is still used to uprate index-linked government bonds, rail fares and other utility bills fell from 3.2 per cent in September to 2.6 per cent. The essential news and context comes in the following five charts.
1. Inflation falling faster than Bank of England expected
The BoE produces quarterly inflation forecasts. In the third quarter, its economists’ central forecast was that CPI inflation would stand at 2.8 per cent. It came in at 2.7 per cent, which was well within the normal margins of error. The early indication of the fourth quarter with inflation falling to 2.2 per cent in October, is considerably below the BoE’s 2.9 per cent central forecast. Again, this reading well within the margin of error. The bank estimated a 17 per cent probability inflation would lie between 2 per cent and 2.5 per cent this quarter, showing just what an imprecise science short-term inflation forecasting is.