Food and clothing price rises keep inflation at 3.1 per cent
Fears were raised yesterday that the Bank of England is failing to get on top of stubbornly high inflation, with official data revealing that the decline in the consumer price index (CPI) measure of price rises came to an abrupt end in August.
The news triggered speculation that the Bank of England might have to consider increasing interest rates, rather than returning to its policy of quantitative easing in the face of a slowing economic recovery. Consumer price inflation was 3.1 per cent in August, unchanged from July, the Office for National Statistics (ONS) revealed, prompting nervousness amongst analysts.
Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said inflation was "worryingly high". Howard Archer, chief economist at IHS Global Insight, said the Bank of England was "likely to be mildly disappointed", though he judged it unlikely to change its view "that underlying inflationary pressures will gradually wane over the coming months".
Although inflation remains more than a percentage point above the target rate of 2 per cent that the Bank's Monetary Policy Committee has been told to aim for, Mr Archer predicted that the headline rate would fall below this level within two years. "As such, it still seems probable that the Monetary Policy Committee will hold off from raising interest rates for some considerable time to come," he said.
Underlying the flat overall figure, significant pricing pressures – particularly in air fares, food and clothing – were countered by falls in the cost of fuel and second-hand cars, the ONS said. Retail analyst Kantar Worldpanel yesterday gave warning that grocery inflation could rise to 4 per cent by the end of the year.
Scott Corfe, an economist at the Centre for Economics and Business Research, added that most people were unlikely to see wages keep pace with the rate of inflation. "[The figures] are bad news for consumers, given that earnings growth looks set to remain modest," Mr Corfe said.