Inflation in unexpected rise to 2.6%
CONSUMER Price inflation unexpectedly rose to 2.6% in July, the first rise in four months, the Office for National Statistics said.
The 0.2% spike in the cost of living was blamed on higher costs for airfare, clothing and footwear. Many experts had expected inflation to continue famming back towards the 2% target set by the government.
RPI inflation, which includes housing costs, was also ahead at 3.2% from 2.8% in June.
The surprise increase could also limit the room of manoeuvre on the part of the Bank of England’s Monetary Policy Committee as it considers further action to stimulate growth.
The increase in the RPI number will be used to calculate the by how much rail companies can raise fares for the next year. As a result rail users face a 6.2% hike as the figure is RPI inflation plus 3%.
Dr Brian Sloan, chief cconomist at Greater Manchester Chamber of Commerce said, “Whilst the figure is much lower than the recent peak of 5.6%, typical rail fares will now increase by 6.2% adding to the burden faced by commuters who have already seen their incomes squeezed.
“This reinforces our message that infrastructure improvements should have been funded through the Bank of England to stimulate domestic growth, as placing the burden on consumers at this time is likely to further damage demand.
“Though we’re focusing on rail price increases this month, we should not lose sight of the fact that inflation is not continuing its recent falls and is unlikely to fall to below 2% as expected by the Bank of England only last week.”
Dr Nick Collett, senior lecturer in finance and accounting at Manchester Business School, said: “The figures are disappointing. Most analysts expect the CPI rate to decline during the autumn and winter and return to the Bank of England target of 2%.
“However, three factors are likely to work against this. First, there is the train fare increase. Second, the fact that petrol prices have come down in the last few months has been positive for CPI, but this could easily reverse in coming months.
“Third and most worrying is food. Harvests in the US are going to be hit by severe droughts. The UK harvest is unpredictable and the rain may have come just in time to produce a heavy crop, but some produce will have been lost in floods and volumes could well be down on normal, pushing up prices. Tea prices will rise substantially. Thus, no-one should rely too heavily on predictions from the Bank of England or financial analysts.”
