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Inflation set to increase amid rising food and fuel prices


Experts said higher petrol prices are set to have put upward pressure on inflation

Experts said higher petrol prices are set to have put upward pressure on inflation

Experts said higher petrol prices are set to have put upward pressure on inflation

Inflation looks set to have rebounded last month as rising food and fuel prices cause the cost of living to march higher.

The Consumer Prices Index (CPI) measure of inflation is expected to reach 2.8% for August when official figures are released on Tuesday.

It would end a momentary pause at 2.6% throughout June and July, keeping the rate above the Bank of England's 2% target and pulling CPI closer to the near four-year high of 2.9% in May.

The main upward pressure will come from r etailers raising prices in response to the Brexit-hit pound, according to economists, who have also flagged the impact of an annual jump in motor fuel costs.

Martin Beck, lead UK economist at Oxford Economics, said: "Annual CPI inflation of 2.6% in July was unchanged from the previous month, offering some cause to think that 'peak-pain' for consumers from elevated inflation had been reached.

"August's reading is likely to frustrate that notion, with a small tick-up expected.

"Higher petrol prices are one category which is set to have put upward pressure on inflation, a reversing of the outcome in July when this area dragged on price rises."

Inflation held steady at 2.6% in July, as a drop in fuel prices offset the rising cost of food, clothing and household goods.

Fuel prices sank by 1.3% for the period after growing by 0.7% between June and July in 2016.

However, the decline was countered by food prices notching a 0.1% rise on the month in July following a fall of 0.2% over the period last year.

Households have seen their spending power come under sustained pressure from lacklustre wage growth and higher inflation, triggering an increase in credit and a decline in savings.

Annual growth in wages, both including and excluding bonuses, grew by 2.1% for April to June.

The Bank is predicting CPI to peak at around 3% in October, with Governor Mark Carney warning last month that the pressure on families would continue for the next few quarters.

However, he said wages would start to outpace inflation next year and interest rates are likely to rise as the economic outlook improves.

It comes as the Bank is expected to keep interest rates on hold at 0.25% on Thursday, with new voting member and deputy governor Dave Ramsden unlikely to "rock the boat" despite forecasts of a further rise in inflation.