INFLATION continued to stay well above target as the summer came to a close, with retail prices still steaming well ahead of feeble increases to salaries this August.
Last month, consumer price index (CPI) inflation was up by 2.7 per cent on August 2012, according to figures released by the Office for National Statistics (ONS) yesterday. The retail prices index (RPI) rose at a faster pace, up to 3.3 per cent in the same period, the joint-highest figure recorded for RPI this year.
Despite a slight slowdown in CPI, from July’s 2.8 per cent rate, inflation is still far above wage increases, causing a decline in real incomes.
Markit’s Chris Williamson commented: “Inflation still remains far higher than wage growth. Wages, excluding bonuses, are growing at an annual rate of just one per cent, meaning pay continues to fall in real terms, as it has done continually since late 2009.”
Core inflation, which strips out the effects of more volatile prices in the index, like food, alcohol and energy, was at two per cent.
Inflationary pressure came from furniture and household equipment, where prices rose by 1.8 per cent between July and August alone, pushing the overall rate of inflation upwards. Transport costs held the index down, recording a smaller increase in the month to August this year than it did in 2012.
Nida Ali of EY’s Item Club added: “We see inflation remaining above the two per cent target for the foreseeable future.” She added: “Accounting for the persistence of higher inflation in administered and regulated prices and the end of deflation in imported goods prices, inflation will probably settle at around 2.2 per cent in 2014.”