Surge in food prices keeps inflation high

HEADLINE annual inflation held steady at 3.1 per cent in August as sharp rises in the cost of air fares, clothing and food prices offset softer petrol prices, official figures revealed yesterday.

The Office for National Statistics (ONS) said that inflation rose 0.5 per cent between July and August but that the annual rate remained the same, surprising economists who had expected a fall to 2.9 per cent.

Food price inflation, which rose to 3.9 per cent from three per cent in July had been expected to drive up CPI in August. But sharp rises in clothing and footwear – which saw the largest monthly rise for a July to August period since 2001 – and a surge in air fares of 16.1 per cent also surprised analysts.


CPI inflation has persistently been higher than expected and has been running consistently well above the Monetary Policy Committee’s target throughout 2010. But the majority of analysts do not expect monetary tightening any time soon: “A scenario where the MPC simply loses patience with inflation and sanctions a hike in interest rates seems improbable. However sticky inflation does suggest that the chances of further QE are waning,” said Investec’s Philip Shaw.

The annual retail prices index (RPI) rose by 4.7 per cent, down from 4.8 per cent in July. The RPIX, which strips out mortgage interest payments, also eased to 4.7 per cent.

Martin Weale, the newest member of the Bank of England’s (MPC), said he had been surprised by the strength of inflation. But he added he was comfortable with forecasts published by the central bank in August which showed inflation falling back to target in the medium term. “The evidence I’ve seen doesn’t suggest that inflation expectations have been de-anchored,” Weale told the Treasury Select Committee.