Member Article

Inflation rise is a “blip” experts say

Inflation has risen in July, data from the Office for National Statistics has shown.

The Consumer Prices Index annual inflation increased from 2.4% in June to 2.6% in July, as the largest upward pressures came from transport, clothing and footwear.

Air fare prices in particular, rose 21.7% on the month, as flights to European destinations increased.

This was partially offset by downward contributions from petrol and diesel, and the purchase of vehicles, particularly second-hand cars.

Clothing and footwear prices fell overall by 2.6%, however this was the smallest fall in clothing prices between June and July since the CPI was launched in 1996.

Graeme Leach, Chief Economist at the Institute of Directors, said: “The latest rise in CPI inflation to 2.6 per cent in July should only be a temporary hiccup in an otherwise downward path over the coming months.

“The 0.1 per cent monthly increase was disappointing, but small, and needs to be seen in context. Firstly, there was always likely to be a small bounce back in clothing inflation in July, after wet weather forced heavy discounting by retailers in June. Secondly, the CPI index rose by 0.6 per cent in August last year, and so in the absence of such an increase this year, headline inflation should fall back sharply next month, although there are concerns about food and petrol prices accelerating. But the big drivers of inflation remain very weak, with the money supply and wage growth providing strong downward pressure.”

David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: “The inflation figures for July recorded an unexpected rise. Despite this setback, the downward trend in inflation seen in recent months is likely to continue.

“There is a realistic chance that inflation will be down to 2% by the end of the year, and will fall slightly below this target during 2013. However, the inflation figures for July show that there is no room for complacency.

“Recent increases in world food prices because of the drought in the US provide a reminder that there are still upward pressures.

“Since inflation has been above the 2% target for a prolonged period, a temporary fall below this target should not be a cause for concern. If inflation does fall, the economy would benefit since the squeeze on businesses and consumers would support demand in the economy. With this in mind, the Bank of England should not use additional Quantitative Easing, which concentrates solely on buying gilts, to limit temporary falls in inflation.”

Bill MacLeod, partner in PwC’s Newcastle office, said: “These are disappointing figures, with observers having expected inflation to steadily decline towards the Bank of England’s 2% target.

“However, inflation is still 50% below last September’s peak and the general trend remains downwards, with the increase in air fares, particularly to European destinations, a major contributor to today’s figure.

“Travellers should now expect increases in the cost of domestic travel as these are based on the July RPI. Fares in England would rise by 3% above today’s RPI.

“Today’s eurozone numbers aren’t good news either; Germany grew by a better than expected 0.3% and the Netherlands also grew by 0.2%. But with France delivering three successive quarters of zero growth, the prognosis for the rest of the year is not good.

“So long as the eurozone crisis remains unresolved, the UK cannot expect to see any significant recovery.”

This was posted in Bdaily's Members' News section by Tom Keighley .