Transport costs and air fares push inflation up to 2.7%

INFLATION rose 0.3% last month to 2.7%, driven higher by rises in the cost of air fares and petrol and diesel.

The Office for National Statistics said the largest upward contribution came from transport, notably air transport – up 22% in  the month – and motor fuels, and clothing.

Downward pressure came from food.

The Consumer Prices Index (CPI) inflation rate has returned to the levels seen between October and March after slowing to 2.4% in April.

Inflation has been running above its 2% target for the past four years but the Bank of England believes it will rise further to around 3% during 2013. The Bank expects inflation then to ease back and return to target in 2014.

Christian Spence, head of business intelligence at Greater Manchester Chamber of Commerce, said: “Today’s rise in inflation was higher than expected and will continue to place pressure on both businesses and households. Oil prices are around 10% higher than last year and this is likely to add further pressure to prices over the coming months. We believe the index is unlikely to begin to ease until last October’s inclusion of higher education fees falls out of the annual comparison.

“Without this one-off pressure, the underlying rate is perhaps closer to 2.4%. The Chamber’s own Quarterly Economic Survey is noting a general weakening in inflationary pressures, despite the strong rise in producer input prices, and it is in the service sector that the greatest pressure on prices continues to be felt.”