Inflation stays on course to ease despite latest increase

● Annual rate of CPI nudges up to 2.5% from 2.4% ● Economists say figure is likely to fall by end of year

Inflation is still likely to ease over the coming months, economists yesterday predicted, despite the first rise in the Consumer Prices Index since November.

Higher transport costs fuelled a hike in the annual CPI measure of inflation to 2.5 per cent in July, from 2.4 per cent a month earlier, official figures revealed.

Mike Hardie, head of inflation at the Office for National Statistics, said: “Transport tickets and fuel, along with often erratic computer game prices, drove up costs for consumers.

“On the other hand, there was a drop in prices for women’s clothing and footwear, and some financial services.”

However, the The Retail Prices Index (RPI) inflation measure – which factors in housing costs such as rents and mortgages – fell to 3.2 per cent last month, down from 3.4 per cent in June, and lower than the 3.5 per cent economists were expecting.

The RPI figure will be closely-watched by commuters and consumer groups, as it is used by the Department of Transport to calculate the yearly increase in rail fares.

Graham Spooner, investment research analyst at The Share Centre, said: “Lurking on the immediate horizon are the various trade tiffs between the US and China, Turkey and Europe which hold the potential to further impact and push prices up in the future which in turn might give the Brit on the street plenty to think about on return from their summer holidays.

“The Bank of England had predicted the rise in inflation in July, and economists are generally of the view that inflation will ease in the latter part of the year.

“For personal investors, the reality of poor real wage growth continues to make finding disposable income to save and invest challenging, which in turn will be another negative for some famous names on the high street, many of whom will be desperate for us to spend in the all-important November/ December period.”

Jason Lennard, senior economist at the National Institute of Economic and Social Research, said: “CPI inflation rose slightly in the year to July. However, our analysis of the prices of the 135,000 goods and services included in the CPI basket suggests that this increase was driven by idiosyncratic factors.

“Trimmed mean inflation, which is a measure of core inflation that excludes a fraction of the most extreme price changes, fell by 0.2 points to 1 per cent.

“The fall cannot be explained by the summer sales, as the fraction of goods and services at sales prices was the lowest since 2012. The fall is explained by more non-sale price decreases and fewer increases. Based on this analysis, CPI is set to return to 2 per cent target in the year ahead.”