inflation will fire interest rates up

LONDON (Reuters) - The central bank cited above-target inflation as one reason for raising interest rates last week and figures on Tuesday could signal its work is not yet done.
Economists polled by Reuters expect consumer price inflation to rise to 2.6 percent in October. Such a reading would be the highest since the series began at the start of 1997 and the sixth consecutive month inflation has been above the bank's 2 percent target.


The biggest upward effect on prices is expected to come from university tuition fees, which have risen 150 percent this year for new students. The Bank of England has already said it expects higher tuition fees to add 0.25 percent to the headline index.



"A mammoth jump in university tuition fees, continued upward pressure on domestic utility bills and food price base effects point to a jump in the October inflation rate," says Alan Clarke at BNP Paribas . "We expect an acceleration to 2.6 percent with risks skewed to the upside."
Retail price inflation, the measure on which most wage deals are based, is also forecast to rise to 3.8 percent -- its highest in more than eight years.


The timing of such a rise ahead of the crucial January pay round will keep policymakers nervous of a wage-price spiral developing, although there has been little sign yet of this happening.
The latest wave of utility bill rises will also impact this week's inflation figures. Nevertheless, with global energy prices now declining, analysts expect fuel costs may soon come down.
"Overall, we expect the upward influences of rising utility bills and tuition fees to be at least partly offset by falls in petrol prices", says Capital Economics.


The London-based consultancy is forecasting a below-consensus inflation reading of 2.5 percent and says the risk of inflation rising above 3 percent -- a level which would require the Bank to write an explanatory letter to the government -- has receded.
Data on Monday showed weaker oil prices were already putting downward pressure on producer prices, with factory gate inflation its weakest in more than two years.

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