Surge in the cost of fuel and HAIRCUTS and a lack of clothing discounts by under-pressure retailers drive shock inflation rise as businesses try to recover from lockdown
- Office for National Statistics said Consumer Prices Index inflation lifted to 1%
- New figure is a rise from 0.6% in June after economists said it would stay flat
- Retail Prices Index, another measure of inflation, also surged last month to 1.6%
UK inflation jumped to its highest level for four months in July, fuelled by the largest hike in fuel prices for nearly a decade and a drop in clothing discounts by struggling retailers.
Price increases by hairdressers, dentists and other services which had to invest in extensive PPE also powered the July increase in Consumer Prices Index (CPI) to 1 per cent from 0.6 per cent in June, the Office for National Statistics (ONS) said.
A consensus of economists had predicted that inflation would stay flat at 0.6 per cent for the month.
The Retail Prices Index (RPI), another measure of inflation, also surged last month, to 1.6 per cent from 1.1 per cent in June.
Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: ‘Inflation has risen, in part, due to the largest monthly pump price increase in nearly a decade, as international oil prices rose from their lows earlier this year.
‘The largest upward movement came from clothing where prices fell on the month but by less than a year ago, partly due to different sales patterns throughout the year so far.
‘In addition, prices for private dental treatment, physiotherapy and haircuts have increased with the need for PPE contributing to costs for these businesses.’
The RAC Foundation shows petrol and diesel prices have risen this year according to research
The Office of National Statistic shows how all retail dramatically fell but is now rallying
RPI is used to calculate the cap on annual rail season ticket price increases in Britain.
The ONS said the leap in CPI came after petrol and diesel prices soared higher due to a rebound in global oil prices and as lockdown restrictions have begun easing worldwide.
A much smaller fall in the cost of women’s clothing last month compared with a year ago also drove the hike in the cost of living.
Economists said the big leap in inflation was also down to the ONS’s decision to return to collection prices for services that were unavailable during lockdown, with inflation set to fall back again over the year ahead.
James Smith at ING said: ‘The combination of VAT changes and the ‘Eat Out to Help Out’ scheme mean we’re set for a big downward move in August, while the rise in unemployment means domestically generated inflation is set to remain muted.’
Philip Shaw, an economist at Investec, said: ‘July’s figures are unlikely to mark the beginning of a period of rising inflation.
‘One factor adding to price pressures has been the release of pent-up demand in the high street, which should dissipate over the next month or two.
‘Moreover consumer spending growth is set to face a weaker period if and when the furlough scheme is wound up at the end of October, as currently set out by the Government.
‘Hence although inflation is unlikely to average as low as 0.25 per cent over the second half of this year, as envisaged in the Bank of England’s Monetary Policy Report earlier this month, a long period of sub-2 per cent appears to be in prospect.’