A sharp rise in air fares and less discounting at clothes shops pushed up inflation in the UK to 2.6% last month
A sharp rise in air fares and less discounting at clothes shops pushed up inflation in the UK to 2.6% last month, intensifying the squeeze on household budgets.
City economists had forecast an easing in consumer price inflation but instead the annual rate rose from 2.4% in June, the first increase since March.
There was bad news for rail commuters, with fares now set to go up by 6.2% in January, pushing many season tickets above £5,000 for commuters in south-east England. This is because retail price inflation (RPI), a broader measure which includes housing costs, jumped to 3.2% in July from 2.8% in June.
Brendan Barber, general secretary of the Trades Union Congress, said: “This shock rise in inflation is a body blow to workers in need of respite after two years of falling wages.
“Last week the Bank [of England] said the UK economy would improve as real incomes started to grow. Today’s news will knock back the recovery even further into the future.
“And there is a further shock in store for rail commuters, who could see the price of their season ticket going up three times faster than their pay rise.”
The figures, released by the Office for National Statistics on Tuesday, cast some doubt over how quickly inflation will fall in coming months. The Bank of England slashed its inflation forecast last week, projecting that CPI would fall close to its 2% target by the end of the year.
Air fares soared 21.7% between June and July, the biggest increase since 2004, mainly for flights to European destinations as some people fled London to escape the predicted Olympics-related travel chaos (which never materialised). In addition, the monthly fall in clothes and shoe prices was the smallest between June and July since records began in 1996. Retailers started their summer sales early in June to shift their seasonal ranges following unusually wet weather.
Higher food prices – caused by grain and sugar price rises due to bad harvests – along with rising oil and petrol prices also threaten to drive inflation higher in coming months.
However, some economists think the pickup in inflation is just a blip and that the weak economy will push prices down. “We really need to take the June and July figures together and this implies that the downward trend in prices remains in place,” said James Knightley, UK economist at ING.
“The rise in oil prices and food commodities presents some risks for headline inflation in coming months, but with the weak economy implying only limited corporate pricing power we still expect inflation to fall below 2% by the end of the year.”