Inflation: Topping off

Grainne Gilmore

Let's pretend the banking system is not in turmoil. If that was the case, there is no doubt that today's disclosure that inflation soared to 5.2 per cent in September would be the main headline. But while the new figure is a reflection of the increasing pressure on our wallets as the price of food and energy has soared, it is not all bad news. The signs are that inflation could start to ease in October and even fall sharply. This does not mean that prices are falling, but it does mean they have stopped rising so fast.

The other piece of good news is that state pension payments are usually pegged to September's RPI rate of inflation. So from next April, pensioners will see their weekly payments boosted by 5 per cent. If it was pegged to the rate in, say, April, payments would be rising by only 4.2 per cent.

However, the downside is that it is pensioners who have been the worst affected by the recent prices rises as a bigger proportion of their income is spent on gas and electricity and food, with some organisations claiming that the real rate of inflation suffered by pensioners is closer to 9 per cent.

The Government's coffers are pretty bare after yesterday's deal to buy large chunks of three high street banks, but an extra payment to pensioners this winter wouldn't go amiss.

Northern Rock: In this Together

Helen Power

Northern Rock's Ron Sandler revealed this morning that the bank's Together mortgage is the single biggest contributor to its failing loan book.

Together mortgages, which the Rock scrapped in February, allowed customers to borrow up to 125 per cent of the value of their homes through a personal loan and a traditional mortgage.

These loans were perceived as accidents waiting to happen, and this morning it became clear that those accidents are indeed happening.

Together is by far Northern Rock’s single biggest problem. Residential mortgage arrears at the bank grew by nearly 60 per cent over the last quarter, increasing from 1.18 per cent of the total book at the end of June to 1.87 per cent at the end of last month. Repossessions rose 13 per cent from 3,710 to the end of June to 4,201 at the end of September.

But of this Together accounted for half the arrears and three quarters of the repossessions.

Mr Sandler claims taxpayers remain on track to get their Monday back from Northern Rock by 2011.

The payback from HBOS and Bradford & Bingley, the other big punts on the property market bow in Government hands, is likely to be further away.

Cadbury: Bitter sweet

Nick Hasell

Since offloading its beverages business earlier this year, Cadbury has developed a welcome habit of accompanying its trading updates with upgrades to profit forecasts.

So the fact that today’s third-quarter statement from the £7 billion chocolate and gum maker contained no change to numbers might be considered a disappointment - however modest. Instead, Cadbury cautioned that it expected an acceleration in raw material costs next year - largely from cocoa - from 5 per cent to 6 per cent currently to between 6 per cent and 8 per cent in 2009.

There was much to reassure. Underlying sales are still rising at around 6 per cent, and a reorganisation of its regional operations should deliver further substantial cost savings.

The recent quandary with Cadbury has been persistent speculation of takeover activity - from either Hershey or Kraft - that has kept the shares at a steep premium to their peers.

Recent stockmarket turbulence has done much to erode that gap, such that Cadbury - whose products have affordability and limited own-label competition in their favour - now looks far more attractive. However, at 528p, or 15 times 2009 earnings, it is still too dear to buy.

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