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Rise in flight costs sparked by Euros helps push up inflation but Brexit impact yet to be felt

By John Mulgrew

Increased flight costs buoyed by huge demand amid this summer's Euro 2016 tournament have helped push up inflation to a higher-than-expected 0.5%.

But according to Northern Ireland economists, inflation could be set to skyrocket once the effects of the Brexit vote are felt.

Inflation rose to 0.5% last month, new figures show - the increase also due to higher fuel prices.

But the research was carried out before the result of the EU referendum.

The Office for National Statistics (ONS) said Consumer Price Index (CPI) inflation in June was up from 0.3% in May and matched the 15-month high recorded in March.

CPI also came in higher than economists' expectations of a rise to 0.4%.

And according to Danske Bank chief economist Angela McGowan, consumers are likely to see an end to record low inflation in the coming months.

"The June inflation data was largely gathered before the EU referendum, so the sharp depreciation in sterling is not yet reflected in the headline statistics," she said.

"There is undoubtedly a gentle upward trend with inflation right now and this reflects increases in both transport and leisure costs.

"Going into the medium and longer term, however, other factors will come into play."

Last month's hike in the cost of living came in part from soaring flight prices, which climbed by a record 10.9% between May and June, pushed higher by more expensive air fares to Europe.

But the ONS said it was too early to see the impact on inflation of the plunge in the value of the pound, triggered by the UK's decision to leave the EU.

Ms McGowan said: "Higher import costs from the depreciated pound and a looser monetary policy are expected to push prices even further upwards. Forecasts suggest that inflation will continue rising this year, reaching around 1.5% by the end of this year, and then over-shooting the 2% target next spring.

"It is anticipated that the Bank of England will choose to ignore any inflation spike on the horizon and keep interest rates low to support economic activity."

And Ulster Bank chief economist Richard Ramsey said the "combination of a weaker pound and rising fuel prices should see CPI inflation push back up" to the target of 2% by the start of 2017.

"Households have enjoyed annual rates of CPI at or below 1% since November 2014," he said.

"This consumer sweet spot looks to be approaching its sell-by date."

ONS statistician Phil Gooding said that the "rising cost of European flights, possibly boosted by the Euro football championships, was the biggest reason for this month's increase in inflation".

Overall, transport prices rose by 1.1% between May and June this year, compared with an increase of 0.2% over the period in 2015, due to a hike in the cost of European flights.

A rise in the price of filling up at the pump also had an upward impact on CPI, picking up more than it did a year ago, with the cost of petrol and diesel climbing by 2.3p and 2.6p per litre respectively between May and June this year.

The price of petrol was 111p per litre in June, while the price of diesel reached 112.1p per litre last month.

The cost of recreation and culture was also up by 0.6% this year.

But these price increases were offset by a slide in the cost of furniture, household equipment and maintenance, with overall prices dipping 0.3% between May and June this year.

Belfast Telegraph