Belfast Telegraph

Hike in cost of living sees inflation rise highest in year

By Ben Woods

Inflation edged to its highest rate for a year last month as rises in the price of alcohol and clothing pushed up the cost of living.

The Consumer Prices Index (CPI) rose to 0.3% from 0.2% in December, according to the Office for National Statistics (ONS).

The ONS said inflation also rose as fuel and food prices dropped less than they did a year ago.

Clothing prices were down 3.4% but contributed to an increase in inflation because the latest fall was smaller than the last drop of 3.9%. And there were "smaller upward pressures" for a number of items of clothing, the ONS added.

Despite the rise in CPI, inflation remains historically low, with the Bank of England predicting it will remain below the Government's 2% target for some time.

And Danske Bank chief economist Angela McGowan said inflation was likely to remain low for the rest of this year.

"Both headline inflation and core inflation are expected to remain subdued in 2016 due to a combination of the past appreciation of sterling and continued low commodity prices," she added.

"Danske Bank now believes that the Bank of England will not be prepared to raise interest rates until at least the first quarter of 2017.

"There are many reasons for the Monetary Policy Committee (MPC) to stay on hold for a long time. Inflation and wage growth are subdued, inflation expectations have fallen, other central banks have an easing bias and uncertainties around a potential Brexit loom."

James Tucker, ONS head of CPI, said: "While still at historically low levels, CPI has edged up to its highest rate for a year. The main reason for the slight rise in inflation was fuel prices falling by less in January than they did at the same point in the previous year.

"Clothing, food and alcoholic drinks also helped to push up inflation, offset by falling air fares."

The ONS said alcohol prices rose 5.2% between December and January, with spirits increasing by 7.5%, beer climbing by 3.6% and wine up 4.8%.

Food prices also fell by 0.6%, compared with a fall of 1% a year earlier.

New Year sales on the high street saw clothing prices fall 3.4% year on year, but dropping less than a year ago.

Shops had been forced to slash prices in December after unseasonably warm weather hit sales of winter clothes.

Air fares fell after sharp rises in December, down 35.8% month on month in January.

The Bank of England has forecast further increases in inflation, to 0.5% by the summer.

But it is likely to remain low for much of the rest of the year, with oil prices more than 70% lower than their peak price in summer 2014.

Figures from the ONS show the Retail Prices Index measure of inflation rose to 1.3% from 1.2% in December.

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