Inflation increase is "likely to be the start of a rising trend", says economist
INFLATION rose to 0.5% last month, as prices nudged upwards after a long period of stagnation.
The Consumer Prices Index (CPI) reached its highest point in 19 months for the year to June 2016, compared with a 0.3% rise in the year to May.
Chris Williamson, chief economist at Markit, said: “Inflation had been stuck at 0.3% for most of the year to date prior to June, but the latest increase was one of the largest seen since late-2014, and likely to be the start of a rising trend in prices as costs march higher in response to the recent slump in sterling.
“Inflation is therefore likely to rise further in coming months as the impact of sterling’s depreciation feeds through, breaching the Bank of England 2% target next year, possibly by some margin. However, policymakers are expected to ‘look through’ any rise in inflation caused by the Brexit-related slump in the pound, focusing instead on the job of shoring up economic growth.
“Interest rate cuts and non-standard measures such as additional asset purchases are therefore widely expected to be seen when the Monetary Policy Committee next meets in August.”
Paul Faulkner, chief executive of Greater Birmingham Chambers of Commerce, urged the Bank not to “jump the gun” on cutting interest rates until the economic picture became clearer.
He added: “This would avoid increasing the mounting pressure to increase prices and in our latest Quarterly Business Report, most business in Greater Birmingham said they were determined to keep their prices stable for at least three months.”
The June rate is a little above the position seen for most of 2016, though it is still relatively low historically.
The Office for National Statistics said: “Rises in air fares, prices for motor fuels and a variety of recreational and cultural goods and services were the main contributors to the increase in the rate.
These upward pressures were partially offset by falls in the price of furniture and furnishings and accommodation services.
