Inflation rises to 2.6%

14 Aug 12
Inflation rose to 2.6% in July, the Office for National Statistics has revealed today, up by 0.2 percentage points from June.
By Richard Johnstone | 14 August 2012

Inflation rose to 2.6% in July, the Office for National Statistics has revealed today, up by 0.2 percentage points from June.

The rise in the Consumer Prices Index has moved it further from the Bank of England's target rate of 2.0%, which the Bank last week predicted it would reach later this year.

The most significant cause of the rise was transport costs, with airline fares increasing by 21.7% over the previous month.

Housing costs also contributed to the increase, up by 0.4% from June, with the main upward pressure coming from rents.

Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said inflation should still drop below 2% in the autumn. The rise ‘appears to come from some unusual seasonal effects’, he said, such as the regular summer increase in air fares coming through a little earlier.

‘Providing that neither oil nor food prices surge upwards, then we should still see inflation drop below the 2% target in the autumn and remain there. This should finally take inflation back below wage growth and end a five-year real wage squeeze for the UK consumer.’

The broader Retail Prices Index of inflation, which includes mortgage interest payments excluded from the CPI measure, also rose to stand at 3.2% in July, up from 2.8% in June.

July’s RPI figure is used to determine the increase in regulated rail fares, such as season tickets, that will be introduced from next January.

In England, train companies will be able to increase fares overall by 6.2%, equal to RPI plus 3 percentage points, as the government moves the cost of paying for infrastructure upgrades from taxpayers to passengers.

Some fares could rise even higher, providing there is a corresponding smaller increase across a train operator’s basket of ticket prices.

Fares in Scotland will increase by a maximum of 4.2%, as the Scottish Government has capped increases at RPI plus 1%. No decision has yet been made on what the increase will be in Wales.

David Sidebottom, a director at rail watchdog Passenger Focus, said: ‘For hard-pressed passengers, especially those who rely on the train for work, the prospect of another increase is a worrying one.’

He added: ‘The way train companies are allowed flexibility to set fares on individual routes is deeply unfair. If the fares go up by RPI plus 3%, many passengers, already hard-pressed, could be looking at double-digit fare increases. While we understand the need for flexibility, we strongly believe that this system needs to be changed.’


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