Belfast Telegraph

Sunday 28 December 2014

Inflation surges to 14-month high

Mark Carney would have to write a letter to the Chancellor if the inflation figure exceeded three per cent
Mark Carney would have to write a letter to the Chancellor if the inflation figure exceeded three per cent

Inflation surged to a 14-month high in June as rising prices at the fuel pumps and shallower discounting by fashion retailers intensified pressure on households.

Consumer Prices Index (CPI) inflation rose to 2.9% last month, from 2.7% in May, the Office for National Statistics (ONS) said.

It is the highest level since April 2012, although inflation was prevented from climbing higher by falls in the prices of fruit, vegetables, bread, air fares and package holidays. The figure was weaker than economists' forecasts of a 3% level, and is expected to fall later in the year as commodity prices ease.

While inflation has remained stubbornly above the Bank of England's 2% target since late 2009, shallower price rises will give the Bank more scope to resume economic stimulus through quantitative easing. Economists said the figure will come as a relief to new Bank governor Mark Carney, avoiding the need for him to write a letter to Chancellor George Osborne explaining high inflation.

The ONS said clothing and footwear prices fell 1.9% month on month, much less than the 4.2% fall a year ago, as retailers started their summer sales with less generous discounts. Pressure on motorists increased, with petrol and diesel prices both rising by 1.1p per litre, compared with price falls a year earlier.

The figures showed inflation continues to erode consumers' spending power and significantly outstrip wage rises, which increased by just 1.3% in the three months to April compared with a year earlier.

Price rises for personal care items such as moisturiser and deodorant, and increases in the cost of domestic heating fuel, helped drive inflation higher. But there were falls in the cost of potatoes, fruit, bread, cereals and dairy products, defying economists' expectations of price rises. Air fares and package holidays also fell in June, compared with sharp increases in flight costs in May. Price falls for sofa beds, carpets and settees also helped hold back inflation.

A Treasury spokesman said inflation is down significantly from its peak of 5.2% in 2011. He added: "At the same time, to help families with the cost of living, the Government has increased the tax-free personal allowance to £10,000, which will take 2.4 million people out of income tax altogether and save a typical basic rate taxpayer almost £600, and frozen fuel duty, which has kept petrol prices 13p per litre lower than they would otherwise have been."

Labour Treasury spokeswoman Catherine McKinnell said: "With prices now rising much faster than wages, the cost-of-living crisis is getting worse. Despite all the complacent claims from ministers about the economy, these figures show that for ordinary people life is getting harder under David Cameron's Government. After inflation, wages are down by an average of over £1,300 since this Government came to power. Millionaires have got a huge tax cut, but millions of people on middle and low incomes are worse off under the Tories."

TUC general secretary Frances O'Grady said: "Today's rise in inflation is further bad news for households and the wider economy. Pay has failed to keep pace with prices for over three-and-a-half years now and we are experiencing the longest real wage squeeze since the 1870s. These figures expose once again the shallowness of our recovery. Without better jobs and decent pay rises we will not get sustainable growth."

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