Inflation on the up in July after airline fares rise

 
Ben Southwood
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INFLATION shocked analysts by flying up in July, driven by soaring air fares and early clothes sales, Office for National Statistics data (ONS) out yesterday showed.

Inflation was 2.6 per cent on the consumer price index (CPI), up from 2.4 per cent in June and confounding city expectations of a steady decline.

This higher rise in prices was mainly driven by a take-off in air fares, which climbed 21.7 per cent during the month, and the fact that clothing sales came early.

Other indices painted a similar picture: the retail price index increased 3.2 per cent in the year to July, and the tax and price index was up to 2.7 per cent. Both of these increases were 0.4 percentage points higher than June’s values.

Some analysts have written off the unexpected development as a blip, but others have adjusted their inflation expectations upwards.

“We now expect CPI inflation to fall to 2.2 per cent by December – previously [our expectation was] 1.9 per cent – [and then] to rise back above three per cent in mid-2013 before falling back to around the two per cent target,” said Chris Crowe at Barclays Research.

Dr Nick Collett at Manchester Business School agreed, warning that petrol prices might be back on the up, while food prices could be hit by worrying harvests in UK and the US.