STUBBORN inflation bounced back up in July, official figures revealed yesterday, hitting 4.4 per cent in the consumer price index (CPI) – up from 4.2 per cent in June.
Yet despite being forced to write another letter to chancellor George Osborne – explaining why inflation has remained more than one per cent above target for the 19th straight month – Bank of England governor Mervyn King (right) appeared to brush off the price pressures and focus on downside risks to the economy.
“Recent developments in world stock markets and in the euro area are of particular concern,” King wrote. “There is a risk that this [Eurozone crisis] could lead to further severe stress and dislocation in financial markets”.
The Bank nonetheless expects CPI inflation to soar past five per cent in the coming months – two and a half times its two per cent target rate.
Andrew Goodwin of the Ernst & Young Item Club said: “We’re likely to see inflation rise significantly over the next couple of months as the large energy price hikes begin to kick in. Four of the big six suppliers have already announced large price hikes – with the other two likely to follow.”
Inflation continues to hammer the nation’s savers, according to the website Moneyfacts: “£10,000 invested five years ago allowing for average interest and tax at 20 per cent would have the spending power of just £9,374 today,” it calculated. “This time last year basic rate taxpayers had a choice of 91 accounts to negate the effects of inflation, today there are just eight and all are fixed-rate cash ISAs.”
The retail price index (RPI) and tax and price index (TPI) were unchanged, at five per cent and 4.6 per cent respectively, the Office for National Statistics said.