June prices rise at fastest rate for 14 months

THE CONSUMER price index (CPI) measure of inflation came in at 2.9 per cent for June, compared to prices in the same month last year, the Office for National Statistics (ONS) said yesterday.

Inflation narrowly missed the three per cent increase that would force the new Bank of England governor, Mark Carney, to write a letter to the Treasury explaining why the index had strayed from its two per cent target.

CPI now sits at a 14-month high, the fastest increase in prices since April 2012. Alcoholic beverages, tobacco and utilities costs particularly drove inflation upward, while health and transportaion costs came in below the overall trend.

Analysis on the importance of rising inflation has been split. Andrew Goodwin of Ernst & Young’s Item Club suggested that inflation would soften over the next few months. “The reality is that it could have been a lot worse and it really is nothing to worry about,” Goodwin said.

He added: “The pickup in inflation reflects conditions a year ago, rather than what is happening now, when petrol prices fell sharply in June and retailers started their summer discounting early”.

However, Federation of Small Businesses (FSB) chairman John Allan disagreed: “Confidence is improving, but it could so easily be dented by rising inflation. Given that, it’s important to keep it under control in the mid-term”.

The alternative retail prices index (RPI) measure came in at 3.3 per cent in June, up from 3.1 per cent in May.

Though the level of inflation is relatively high when compared to recent months, and to the long period of moderation before the financial crisis, it is still below the level seen immediately after the crash.

In September 2011, CPI peaked at 5.2 per cent. Despite falling to lower levels, it is still considerably higher than growth in wages.