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Dearer food keeps inflation high

A squeeze on food bills offset lower petrol prices in July to keep the cost of living well above the Bank of England's target, official figures have shown.

The Consumer Prices Index (CPI) edged down from 3.2% to 3.1% over the month, in line with City hopes - but still triggers another open letter from Governor Mervyn King to the Chancellor to explain the stubbornly high inflation.

The Office for National Statistics (ONS) said food prices jumped 0.7% between June and July, the biggest monthly rise for two years.

But falling petrol costs and second-hand car prices over the month - in contrast with steep rises a year earlier - helped ease CPI overall.

The ONS said higher costs for meat, fruit and vegetables during July also contrasted with price falls a year earlier. The Russian drought and rising wheat prices could add to the pressure on food inflation in the months ahead.

Last week the Governor warned that CPI would be above target until the end of 2011 due to factors such as the Government's deficit-busting VAT hike to 20% next January.

The squeeze on food shopping bills contrasted with the picture on the high street, where retailers are still cutting prices in a bid to draw in worried consumers.

The ONS said clothing and footwear prices fell 4.9% between June and July, led by womenswear. This is the biggest price slide in a single month since 2002.

Petrol prices also fell by an average 0.7p a litre over the month, against a 1.1p hit for motorists at the forecourt a year earlier. But rail commuters meanwhile will be braced for fare rises of almost 6% next January despite the Retail Prices Index (RPI) easing to 4.8% in July.

Most regulated rail fare increases are based on a formula of July's RPI plus 1% - which would leave passengers facing rises of 5.8%. Commuters could be hit with even bigger hikes if the Government decides to scrap the formula, leading the way for further rises.

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