Rate of inflation rises unexpectedly

Posted on August 15th, 2012 | Categories - News

Both measures of inflation rose unexpectedly in July causing concern for savers, people on fixed incomes and rail passengers.

The Consumer Prices Index (CPI) rose from 2.4% in June to 2.6% in July. The Retail Prices Index (RPI), which includes housing costs, rose by a larger amount, from 2.8% to 3.2%.

The increases in both rates of inflation were partly down to higher air fares, which rose by 21.7% compared to last month. A lower than usual drop in clothing prices, due to many summer sales being moved forward, also contributed as did rise in housing costs.

The figures from the Office for National Statistics (ONS) came as something of a surprise, as inflation seemed to be on a downward trajectory; this was the first recorded rise since March.
Responding to the figures a Treasury spokesperson said: “Any increase is disappointing.”
“The government knows how tough things are for families at the moment and that is why we have reduced income tax, and frozen both council tax and fuel duty.”

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Rail price rise

The jump in the rate of RPI is particularly bad news for rail travellers.

Price increases are pegged to RPI in July each year. The increase will mean rail passengers in England will see prices rise by RPI plus 3%, in Scotland the rise will be RPI plus 1%, and in Wales the increase has not yet been confirmed.

This means rail passengers in the UK will see prices rise by almost double the rate of inflation, causing financial hardship to commuters, many who have no alternative method of travelling to work.

Concern for savers and fixed incomes

Over the past couple of years high inflation has plagued savers and people on fixed incomes, who are often retired. Savers have struggled to get a real, inflation beating, return on their savings accounts, whilst people on fixed incomes have seen the buying power of those incomes reduced.

Since March the rate of inflation has been slowing, moving nearer to the Bank of England’s 2% target for CPI inflation, both of these groups will hope that July’s figures are simply a blip in an otherwise downward trend.

Responding to the figures, most economic experts seemed to believe, that the surprise rise was indeed a one off blip and that there are still very few inflationary pressures in the economy; although the recent rise in world food prices is a cause for concern.

The rise was also not, on the whole, attributed to the Bank of England’s controversial policy of Quantitative Easing, which many economists believe could cause higher levels of inflation as money is pumped into the economy.

Only time will tell whether or not the experts are right. Savers, people with fixed incomes and rail passengers, to name just three groups, will hope the economists are correct.