Inflation rose again last month with higher prices for clothes and fees for financial services pushing up the Consumer Prices Index (CPI) from 4.2% to 4.4%, figures from the Office for National Statistics (ONS) showed today.
Clothing and footwear prices measured for CPI, the Government’s preferred way of gauging inflation, registered their biggest annual increase since records began in 1997. The Retail Prices Index (RPI) measure was unchanged at 5%.
The CPI rate meant Bank of England governor Mervyn King had to write another letter to the Chancellor of the Exchequer explaining why inflation remains stubbornly above the Bank’s target of 2%.
He blamed the continuing high inflation rate on “the increase in the standard rate of VAT to 20% and past increases in global energy prices and import prices”.
He also stressed that “the big risks currently facing the UK economy come from the rest of the world”.
The Governor must write a letter every three months if CPI is more than one percentage point above or below the target.
The Bank said last week that it remained confident that inflation would return to its target level in the next two years.
Today’s RPI figure is bad news for train travellers as July’s figure is used to determine how much regulated rail fares can increase.
Under the government’s new formula, fares will be able to rise by RPI plus 3%, which means train operating companies will be able to increase average fares by up to 8%.
The ONS said the main contributors to inflation came from financial services, clothing and footwear, furniture, household equipment and housing rents.
John Hawksworth, chief economist at accountants PwC, said: “Our everyday inflation index suggests that the public may perceive the inflation rate for their regular purchases to be more than this at 5.9%, according to our calculations.
“This reflects above average inflation rates in key categories such as food and non-alcoholic beverages (6.2%), alcohol and tobacco (10.3%), petrol and other regular motoring costs (10%) and rail transport (9.3%).
“So the severe squeeze on household real disposable incomes is continuing even before recently announced rises in domestic gas and electricity bills take effect this month. This will dampen consumer spending growth and leaves interest rate rises off the agenda for the foreseeable future.”
