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Higher travel costs push up UK inflation Higher travel costs push up UK inflation
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Dearer air fares, the rising cost of driving and more expensive computer games pushed the cost of living in the UK higher last month. Britain’s brief flirtation with deflation has receded further into the past after dearer air fares, the rising cost of driving and more expensive computer games pushed up the cost of living last month.
Figures from the Office for National Statistics showed that the consumer prices index rose by 0.5% in the year ending in June, up from 0.3% in May. Office for National Statistics (ONS) figures showed that the consumer price index (CPI) rose by 0.5% in the year ending in June, up from 0.3% in the year to May.
While the ONS said the inflation rate remained low by historic standards, City analysts said further increases are likely in the coming months as the fall in the value of the pound raises the cost of imported goods and services. With more price increases in the pipeline due to the Brexit vote and the rebound in commodity prices, analysts said inflation was on course to breach the official 2% target during 2017.
The ONS said prices had risen by 0.2% between May and June this year but had remained unchanged over the same period of 2015. It collected the sample of the cost of around 700 goods and services before the EU referendum on 23 June. However, they said they expected the Bank of England to ignore the rising cost of living and agree to fresh measures to stimulate growth at a meeting of the Bank’s monetary policy committee next month.
A breakdown of the CPI showed that air fares rose by 11%, the biggest increase between May and June on record and the main factor behind the higher-than-expected inflation figure of 0.5%. Economists had been expecting 0.4% and ONS statistician Phil Gooding said the cost of flights had possibly been boosted by the Euro 2016 football championships in France. Related: Brexit fallout – what it means for you and your finances
There was also a jump of more than two pence a litre in petrol and diesel, which meant a more rapid increase in the cost of transport. But cheaper furniture and accommodation helped blunt the increase, the ONS said. The ONS said prices had risen by 0.2% between May and June this year, but remained unchanged over the same period in 2015. It collected a sample of the cost of about 700 goods and services before the EU referendum on 23 June.
A breakdown of the CPI showed that air fares rose by 11%, the biggest increase between May and June on record, and the main factor behind the higher-than-expected inflation figure of 0.5%. Economists had been expecting 0.4%.
The ONS statistician Phil Gooding said the cost of flights had possibly been raised by the Euro 2016 football championships in France, where Wales, Northern Ireland and England competed.
There was a rise of more than 2p a litre in petrol and diesel, which meant a more rapid increase in the cost of transport. But cheaper furniture and accommodation helped blunt the hike, the ONS said.
Inflation hovered around zero during 2015 as the collapse in oil prices cut the cost of travel and domestic fuel bills. In the first six months of 2016, however, it has been at 0.3% or 0.5%. Further increases will lead to a squeeze on living standards unless workers are able to secure more generous pay awards.
So-called core inflation, which strips out food, energy, alcohol and tobacco, also rose last month, from an annual rate of 1.2% to 1.4%.So-called core inflation, which strips out food, energy, alcohol and tobacco, also rose last month, from an annual rate of 1.2% to 1.4%.
Jeremy Cook, chief economist at the international payments company, World First, said: “The slightly higher than expected inflation measure has had little impact on sterling given the data is pre-Brexit. The ONS producer price index provided supporting evidence that deflationary pressures are starting to ease for UK manufacturers.
“In any case, higher inflation is set to come down the track later in the year as producers and retailers respond to a falling pound and pressures on margins but we have to believe that the Bank of England will look through any spikes in inflation and costs in a bid to be growth and credit supportive, as they did during the Global Financial Crisis.” Although the price of goods leaving factory gates in June was 0.4% below that of a year earlier, the decrease last month was smaller than the 0.6% annual decline in the 12 months to May.
Chris Williamson, chief economist at Markit, said: “UK inflation rose in June, buoyed by rising airfares and higher oil prices. Inflation had been stuck at 0.3% for most of the year to date prior to June, but the latest increase was one of the largest seen since late-2014, and likely to be the start of a rising trend in prices as costs march higher in response to the recent slump in sterling.” Meanwhile, the cost of fuel and raw materials bought by industry was down by 0.5% in the year to June, following a 4.4% decline the previous month.
Victoria Clarke, an analyst at Investec, said she expected inflation to be at 3% by the middle of 2017, but then fall back as a result of weaker demand caused by the fallout from Brexit.
Chris Williamson, the chief economist at Markit, said: “UK inflation rose in June, buoyed by rising airfares and higher oil prices. Inflation had been stuck at 0.3% for most of the year to date prior to June, but the latest increase was one of the largest seen since late 2014, and likely to be the start of a rising trend in prices as costs march higher in response to the recent slump in sterling.”